Upload
others
View
14
Download
0
Embed Size (px)
Citation preview
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 1 of 137
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO
Civil Action No. 1:12-cv-00292-WJM-KMT
In re MOLYCORP, INC. SECURITIES LITIGATION.
PLAINTIFFS’ CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF FEDERAL SECURITIES LAWS
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 2 of 137
TABLE OF CONTENTS
Page
NATUREOF THE ACTION ..........................................................................................................1
JURISDICTIONAND VENUE ......................................................................................................4
PARTIES.........................................................................................................................................4
Plaintiffs...............................................................................................................................4
The1934 Act Defendants ....................................................................................................6
The 1933 Act Defendants ..................................................................................................18
Control Person/Group Published Information Allegations................................................27
SUBSTANTIVE ALLEGATIONS ...............................................................................................29
Background........................................................................................................................29
Molycorp’s Modernization and Expansion Plan for Mountain Pass: “Project Phoenix”.................................................................................................................30
Defendants’ Unlawful Scheme ..........................................................................................31
SUMMARY OF SCIENTER ALLEGATIONS............................................................................36
Defendants’ Knowledge or Reckless Disregard of Materially Adverse Non-Public Facts.......................................................................................................................36
DEFENDANTS WERE MOTIVATED TO COMMIT FRAUD..................................................40
Motivation to Commit Securities Fraud: Insider Trading..................................................40
Motivation: Acquisition of Silmet Grupp..........................................................................42
Motivation: Molycorp’s Convertible Senior Note Offering..............................................44
MATERIALLY FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIOD.............................................................................................................................44
POST CLASS-PERIOD EVENTS ................................................................................................71
LOSS CAUSATION/ECONOMIC LOSS ....................................................................................74
- i -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 3 of 137
Page
FRAUD-ON-THE-MARKET PRESUMPTION OF RELIANCE................................................76
NOSAFE HARBOR .....................................................................................................................77
CLASS ACTION ALLEGATIONS ..............................................................................................78
FIRST CLAIM FOR RELIEF ...........................................................................................80
For Violations of §10(b) of the 1934 Act and Rule 10b-5 Against Defendants Molycorp, Smith, KMSMITH, Allen, Ashburn, Bhappu, Burba, Cogut, Pegasus, Dolan, RCF, Kristoff, T-II Holdings, Henry and Thompson................................................................80
SECOND CLAIM FOR RELIEF ......................................................................................83
For Violations of §20(a) of the 1934 Act Against Defendants Molycorp, Smith, KMSMITH, Allen, Ashburn, Bhappu, Burba, Cogut, Pegasus, Dolan, RCF, Kristoff, T-II Holdings, Henry and Thompson..................................................................................................83
THIRD CLAIM FOR RELIEF..........................................................................................85
For Violations of §20A(a) of the 1934 Act Against Defendants RCF and Bhappu.......................................................................................................85
FOURTH CLAIM FOR RELIEF ......................................................................................86
For Violations of §20A(b) of the 1934 Act Against Defendants Bhappu AndDolan..................................................................................................86
FIFTH CLAIM FOR RELIEF ...........................................................................................87
For Violations of §20A(c) of the 1934 Act Against Defendants Bhappu andDolan...................................................................................................87
SIXTH CLAIM FOR RELIEF...........................................................................................88
For Violations of §20A(a) of the 1934 Act Against Defendants Pegasus, Cogutand Kristoff .....................................................................................88
SEVENTH CLAIM FOR RELIEF....................................................................................89
- ii -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 4 of 137
Page
For Violations of §20A(b) of the 1934 Act Against Defendants Cogut and Kristoff.......................................................................................................89
EIGHTH CLAIM FOR RELIEF .......................................................................................90
For Violations of §20A(c) of the 1934 Act Against Defendants Cogut and Kristoff.......................................................................................................90
NINTH CLAIM FOR RELIEF..........................................................................................92
For Violations of §20A(a) of the 1934 Act Against Defendants T-II Holdings, Cogut and Kristoff.....................................................................92
TENTH CLAIM FOR RELIEF .........................................................................................93
For Violations of §20A(b) of the 1934 Act Against Defendants Cogut and Kristoff.......................................................................................................93
ELEVENTH CLAIM FOR RELIEF .................................................................................94
For Violations of §20A(c) of the 1934 Act Against Defendants Cogut and Kristoff.......................................................................................................94
TWELFTH CLAIM FOR RELIEF....................................................................................95
For Violations of §20A(a) of the 1934 Act Against Defendants KMSMITH and Smith ...............................................................................95
THIRTEENTH CLAIM FOR RELIEF .............................................................................96
For Violations of §20A(b) of the 1934 Act Against Defendant Smith..................96
FOURTEENTH CLAIM FOR RELIEF............................................................................97
For Violations of §20A(c) of the 1934 Act Against Defendant Smith..................97
FIFTEENTH CLAIM FOR RELIEF.................................................................................99
For Violations of §20A(a) of the 1934 Act Against Defendants Ashburn, Burbaand Thompson.................................................................................99
ALLEGATIONS SPECIFIC TO THE 1933 ACT ACTION ......................................................100
- iii -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 5 of 137
Page
MATERIALLY FALSE AND MISLEADING STATEMENTS IN THE OFFERING DOCUMENTS.................................................................................................................101
The February 11, 2011 Offering......................................................................................101
The June 10, 2011 Offering .............................................................................................102
FIRST CLAIM FOR RELIEF .........................................................................................104
For Violations of §11 of the 1933 Act in Connection with the Offering of Securities Against Defendants Molycorp, Smith, Allen, Ashburn, Ball, Bhappu, Cogut, Dolan, Kristoff, Machiels, Henry and Thompson................................................................................................104
SECOND CLAIM FOR RELIEF ....................................................................................106
For Violations of §12(a)(2) of the 1933 Act Against Defendants Smith, Allen, Ashburn, Ball, Bhappu, Cogut, Dolan, Kristoff, Machiels, Henry, Thompson, Morgan Stanley, J.P. Morgan, Knight, Dahlman, Stifel, BNP, CIBC, Piper Jaffray and RBS.............................106
THIRD CLAIM FOR RELIEF........................................................................................107
Violations of §15 of the 1933 Act Against All Defendants.................................107
PRAYER FOR RELIEF ..............................................................................................................108
JURY TRIAL DEMANDED.......................................................................................................109
- iv -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 6 of 137
NATURE OF THE ACTION
1. Lead Plaintiffs Randall Duck (“Duck”), Jerry W. Jewell (“Jewell”), Philip Marner
(“Marner”) and Donald E. McAlpin (“McAlpin”), and representative plaintiffs Iron Workers Mid-
South Pension Fund (the “Iron Workers”), Joseph Martiny (“Martiny”), Jayne McCarthy
(“McCarthy”), Robert Grabowski (“Grabowski”), Marjorine Dowd (“Dowd”), Kyle Hare (“Hare”),
Robert DeStefano (“DeStefano”) and Eugene R. Salmon (“Salmon”) (collectively, “plaintiffs”) bring
this action on their own behalf and on behalf of all other persons similarly situated, allege the
following based upon personal knowledge as to themselves and their own acts, information and
belief as to all other matters, based upon, inter alia , the investigation conducted by and through their
attorneys.
2. This is a class action for violations of the federal securities laws on behalf of all
purchasers or acquirers of Molycorp, Inc. (“Molycorp” or the “Company”) securities from February
11, 2011 through November 10, 2011 (the “Class Period”), including all persons who purchased or
acquired Molycorp 5.50% Series A Mandatory Convertible Preferred Stock (“Preferred Stock”)
pursuant to the February 11, 2011 initial public offering (“Preferred Stock IPO”) and all persons who
purchased or acquired Molycorp common stock pursuant to the June 10, 2011 secondary offering
(“Secondary Offering”), and who were damaged thereby (the “Class”).
3. This action concerns defendants’ false and/or misleading statements and omissions
regarding the capabilities of the Company’s mine, known as Mountain Pass, located in San
Bernardino County, California. Specifically, throughout the Class Period, defendants falsely assured
investors that the Mountain Pass ore body contained commercial quantities of highly-valued “heavy
- 1 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 7 of 137
rare earth elements” (“HREEs”) and that users of “light rare earth elements” (“LREEs”) were not
switching to viable substitutes as the prices for LREEs skyrocketed during 2010 and 2011.
4. Specifically, and as described in detail at ¶¶94-95 below, according to former
Molycorp employees, including a mining equipment operator, analytical chemist and geologist, there
were not commercially significant volumes of HREEs in the Mountain Pass ore body or in the
Molycorp stockpiles. In addition, and as described in detail at ¶¶96-98 below, according to a leading
industry expert with extensive and long-term experience in the total rare earth supply chain who
personally visited the Mountain Pass mine prior to and during the Class Period, Molycorp will never
produce commercially significant volumes of HREE from the Mountain Pass ore body. The industry
expert has personal knowledge that Molycorp, prior to and during the Class Period, in desperate
efforts to purchase companies with proven deposits of commercial volumes and recoverable levels of
HREEs because Molycorp’s Mountain Pass mine ore body does not have commercially viable
amounts of HREEs. In fact, shortly before June 2009, the industry expert personally viewed a
Molycorp internal report authored by a Molycorp Vice President, which indicated that the Mountain
Pass ore body did not have commercially viable amounts of HREEs.
5. Defendants’ Class Period false and/or misleading statements and omissions
artificially inflated Molycorp’s security prices, allowed the insider selling defendants to unload, in
less than four months, the staggering sum of more than $1.5 billion of their personal holdings of
Company stock. In addition, it allowed the Company to complete a $207 million Preferred Stock
IPO, a $586.5 million Secondary Offering of common stock and facilitated the acquisition of
Aktsiaselts Silmet Grupp (“Silmet Grupp”) for the purpose of creating the illusion that Molycorp
would be producing HREEs in commercial quantities. As the truth about defendants’ false and/or
- 2 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 8 of 137
misleading statements and omissions was revealed, Molycorp security holders suffered hundreds of
millions of dollars in damages as the Company’s common stock plummeted from a Class Period
high of $75.18 per share to $33.45 per share on November 11, 2011 – representing a 55% decline in
seven months . The Company’s Preferred Stock suffered a similar fate and Molycorp’s securities
prices have not since recovered.
6. Plaintiffs assert the first set of claims arising from allegations of securities fraud in
violation of §10(b) of the Securities Exchange Act of 1934 (“1934 Act”) against those defendants,
Molycorp, certain of the Company’s senior executives and directors and controlling shareholders,
who made materially false and/or misleading statements and omissions that caused the price of
Molycorp securities to be artificially inflated over the course of the Class Period. Plaintiffs assert
control person claims pursuant to §20(a) of the 1934 Act. Plaintiffs Marner, Iron Workers, Martiny,
McCarthy, Grabowski, Dowd, Hare and DeStefano also assert contemporaneous trading violations
against the insider selling defendants under §20A of the 1934 Act.
7. The second set of claims arise under §§11, 12 and 15 of the Securities Act of 1933
(“1933 Act”) against those defendants who are alleged to be statutorily liable under a theory of strict
liability and/or negligence for materially untrue statements and misleading omissions made in
connection with the registration statements and prospectuses for the February 11, 2011 Preferred
Stock IPO and June 10, 2011 Secondary Offering of Molycorp common stock. Through the
February 11, 2011 Preferred Stock IPO, Molycorp raised $207 million, less underwriting fees, in
desperately needed capital to fund the construction and modernization of the Mountain Pass mine.
The June 10, 2011 Secondary Offering facilitated over $586.5 million in wrongful insider trading
and not a single penny of that offering was used to support Molycorp’s continuing operations.
- 3 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 9 of 137
Plaintiffs also assert control person claims pursuant to §15 of the 1933 Act. Consistent with the
Tenth Circuit’s decision in Schwartz v. Celestial Seasonings , 124 F.3d 1246, 1251-52 (10th Cir.
1997), and recent court decisions within the Tenth Circuit, plaintiffs’ non-fraud allegations in
support of the 1933 Act claims are pled as separate, stand-alone claims under the notice pleading
standards of Fed. R. Civ. P. 8(a).
JURISDICTION AND VENUE
8. The claims asserted herein arise under §§11, 12(a)(2) and 15 of the 1933 Act (15
U.S.C. §§77k, 77l and 77o) and under §§10(b), 20(a) and 20A of the 1934 Act (15 U.S.C. §§78j(b),
78t(a) and 78t-1) and Rule 10b-5 (17 C.F.R. §240.10b-5) promulgated thereunder by the Securities
and Exchange Commission (“SEC”). Jurisdiction is conferred by §22 of the 1933 Act (15 U.S.C.
§77v) and §27 of the 1934 Act (15 U.S.C. §78aa). Venue is proper pursuant to §22 of the 1933 Act
and §27 of the 1934 Act. Molycorp’s headquarters are located in Greenwood Village, Colorado and
many of the acts and transactions constituting the violations of the securities laws alleged herein
occurred in this District.
9. In connection with the acts and conduct alleged herein, defendants, directly and
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 exchanges and markets.
PARTIES
Plaintiffs
10. Plaintiff Duck purchased Molycorp common stock during the Class Period, as set
forth in the certification accompanying the Motion to Appoint the Molycorp Shareholder Group as
- 4 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 10 of 137
Lead Plaintiff, and was damaged as a result of defendants’ conduct as alleged herein. See Dkt. No.
29-2.
11. Plaintiff Jewell purchased Molycorp common stock during the Class Period, as set
forth in the certification accompanying the Motion to Appoint the Molycorp Shareholder Group as
Lead Plaintiff, and was damaged as a result of defendants’ conduct as alleged herein. See Dkt. No.
29-2.
12. Plaintiff Marner purchased Molycorp common stock during the Class Period, as set
forth in the certification accompanying the Motion to Appoint the Molycorp Shareholder Group as
Lead Plaintiff, and was damaged as a result of defendants’ conduct as alleged herein. See Dkt. No.
29-2.
13. Plaintiff McAlpin purchased Molycorp common stock during the Class Period, as set
forth in the certification accompanying the Motion to Appoint the Molycorp Shareholder Group as
Lead Plaintiff, and was damaged as a result of defendants’ conduct as alleged herein. See Dkt. No.
29-2.
14. Representative plaintiff Iron Workers purchased Molycorp common stock during the
Class Period, as set forth in the certification attached hereto, and was damaged as a result of
defendants’ conduct as alleged herein.
15. Representative plaintiff Martiny purchased Molycorp common stock during the Class
Period, as set forth in the certification attached hereto, and was damaged as a result of defendants’
conduct as alleged herein.
- 5 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 11 of 137
16. Representative plaintiff McCarthy purchased Molycorp common stock during the
Class Period, as set forth in the certification attached hereto, and was damaged as a result of
defendants’ conduct as alleged herein.
17. Representative plaintiff Grabowski purchased Molycorp common stock during the
Class Period, as set forth in the certification attached hereto, and was damaged as a result of
defendants’ conduct as alleged herein.
18. Representative plaintiff Dowd purchased Molycorp common stock during the Class
Period, as set forth in the certification attached hereto, and was damaged as a result of defendants’
conduct as alleged herein.
19. Representative plaintiff Hare purchased Molycorp common stock during the Class
Period, as set forth in the certification attached hereto, and was damaged as a result of defendants’
conduct as alleged herein.
20. Representative plaintiff DeStefano purchased Molycorp common stock during the
Class Period, as set forth in the certification attached hereto, and was damaged as a result of
defendants’ conduct as alleged herein.
21. Representative plaintiff Salmon purchased Molycorp preferred stock in connection
with the Company’s February 2011 Preferred Stock IPO, as set forth in the certification attached
hereto, and was damaged as a result of defendants’ conduct as alleged herein.
The 1934 Act Defendants
22. Defendant Molycorp is a rare earth element (‘REE”) mining business, engaged in the
production and sale of rare earth oxides in the western hemisphere. The Company’s products
include rare earth oxides, metals, alloys and magnets for various inputs in existing and emerging
- 6 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 12 of 137
applications and water treatment technology. The Company owns and operates the Mountain Pass
facility, an open-pit mine located in San Bernardino County, California. Molycorp maintains its
corporate headquarters at 5619 Denver Tech Center Parkway, Suite 1000, Greenwood Village,
Colorado.
23. Defendant Mark A. Smith (“Smith”) was, at all relevant times, Chief Executive
Officer (“CEO”), President and a Director of Molycorp. During the Class Period, Smith participated
in the issuance of false and/or materially misleading statements and omissions and failed to disclose
the true facts about the capabilities of the Mountain Pass mine. In addition to issuing statements
throughout the Class Period, Smith continuously had the opportunity to correct misstatements and
omissions by and on behalf of Molycorp, but failed to do so. During the Class Period, Smith
reported indirect and direct sales of 259,260 shares of the Molycorp common stock for proceeds of
$13.1 million . These insider sales amounted to more than 21% of Smith’s total Class Period
holdings of Molycorp common stock.
24. As CEO, President and a Director, Smith was responsible for directing Molycorp’s
financial and business affairs. During conference calls and meetings with analysts and investors,
Smith repeatedly held himself out as knowledgeable about the Company’s operating and financial
condition, including, specifically, the characteristics of the ore body at Mountain Pass. Further, in
conjunction with each of the Company’s Class Period financial reports filed with the SEC, Smith
assured investors that he, together with defendant James S. Allen was “responsible for . . .
maintaining disclosure controls and . . . [d]esigned such disclosure controls and procedures . . . to
ensure that material information relating to [Molycorp], including it consolidated subsidiaries, is
made known to us by others within [Molycorp].” At no time during the Class Period did Smith or
- 7 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 13 of 137
any other defendant assert that they were not aware of material aspects of Molycorp’s mining
operations.
25. Reinforcing the claim that Smith, along with other Molycorp senior executives, was
aware of material adverse information concerning the Mountain Pass mine, the Company’s SEC
filings stated “Smith[] [has] broad experience in the rare earths mining industry and [a] deep
understanding of the operations at our Mountain Pass facility.” In addition, Smith has been involved
with the operation and development of the Mountain Pass mine for over 24 years.
26. Further reinforcing the claim that Smith, along with other Molycorp senior
executives, monitored and was aware of material information regarding the existence, or lack
thereof, of HREEs at the Mountain Pass mine, the Company’s SEC filings stated that Smith’s
incentive compensation during the Class Period was primarily based upon “achieving various
financial objectives, such as ensuring full funding of Project Phoenix” (10% weighting) and
“successful completion of various [Project Phoenix] milestones related to our business
modernization and expansion plans, such as meeting schedule and cost targets, submitting
applications and securing all required [] permits” (40% weighting). Defendants and the market
understood Project Phoenix to be a reference to the Mountain Pass mine modernization project. For
2011, Smith was awarded $742,910 in incentive compensation in connection with his monitoring
and achievement of Project Phoenix milestones.
27. Defendant KMSMITH LLC (“KMSMITH”) was, at all relevant times, a Delaware
limited liability company having a registered agent located at 1811 Silverside Road, Wilmington,
Delaware and listing its address in SEC filings as c/o Molycorp, Inc., 5619 Denver Tech Center
Parkway, Suite 1000, Greenwood Village, Colorado, Attention: Mark A. Smith. At the times
- 8 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 14 of 137
specified herein, KMSMITH, through its employees or agents, engaged in inside trading in violation
of §§10(b) and 20A of the 1934 Act (15 U.S.C. §§78j(b) and 78t(1)) and Rules 10b-5 and 10b5-1
promulgated thereunder by the SEC (17 C.F.R. §240.10b-5) at the direction of, and/or based on
material, adverse, non-public information provided by Smith, who had the power to control, and did
control, KMSMITH. Smith is married to Kimberly Smith, who purportedly has sole voting and
investment power with respect to KMSMITH. During the Class Period, KMSMITH reported sales
of 148,301 shares of Molycorp common stock for proceeds of $7.5 million . These insider sales
amounted to 49% of KMSMITH’s total Class Period holdings of Molycorp common stock.
28. Defendant James S. Allen (“Allen”) was, at all relevant times, Chief Financial Officer
(“CFO”) and Treasurer of Molycorp. During the Class Period, Allen participated in the issuance of
false and/or materially misleading statements and omissions and failed to disclose the true facts
about the capabilities of the Mountain Pass mine. In addition to issuing statements throughout the
Class Period, Allen continuously had the opportunity to correct misstatements and omissions by and
on behalf of Molycorp.
29. As CFO and Treasurer, Allen was responsible for directing Molycorp’s financial and
business affairs. During conference calls and meetings with analysts and investors, Allen repeatedly
held himself out as knowledgeable about the Company’s operating and financial condition, including
the capabilities of the Mountain Pass mine. Further, in conjunction with each of the Company’s
Class Period financial reports filed with the SEC, Allen assured investors that he, together with
defendant Smith, was “responsible for . . . maintaining disclosure controls and . . . [d]esigned such
disclosure controls and procedures . . . to ensure that material information relating to [Molycorp],
including its consolidated subsidiaries, is made known to us by others within [Molycorp].” At no
- 9 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 15 of 137
time during the Class Period did Allen or any other defendant assert that they were not aware of
material aspects of Molycorp’s mining operations.
30. Reinforcing the claim that Allen, along with other Molycorp senior executives,
monitored and was aware of material information regarding the existence, or lack thereof, of HREEs
at the Mountain Pass mine, the Company’s SEC filings stated that Allen’s incentive compensation
during the Class Period was primarily based upon “achieving various financial objectives, such as
ensuring full funding of Project Phoenix” (10% weighting) and “successful completion of various
[Project Phoenix] milestones related to our business modernization and expansion plans, such as
meeting schedule and cost targets, submitting applications and securing all required [] permits” (40%
weighting). For 2011, Allen was awarded $258,282 in incentive compensation in connection with
his monitoring and achievement of Project Phoenix milestones.
31. Defendant John F. Ashburn, Jr. (“Ashburn”) was, at all relevant times Executive Vice
President and General Counsel of Molycorp. During the Class Period, Ashburn participated in the
issuance of false and/or materially misleading statements and omissions and failed to disclose the
true facts about the capabilities of the Mountain Pass mine. In addition to issuing statements
throughout the Class Period, Ashburn continuously had the opportunity to correct misstatements and
omissions by and on behalf of Molycorp, but failed to do so. During the Class Period, Ashburn
reported direct sales of 95,184 shares of Molycorp common stock for proceeds of $4.8 million .
These insider sales amounted to 34% of Ashburn’s total Class Period holdings of Molycorp common
stock.
32. Prior to joining Molycorp, Ashburn was Senior Counsel of Chevron Mining, Inc., a
wholly-owned subsidiary of Chevron Corporation. Prior to joining Chevron Mining, Inc., Ashburn
- 10 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 16 of 137
was Senior Counsel of Unocal Corporation. Ashburn was involved in various aspects of the
Mountain Pass mine, in his capacity as Senior Counsel with Chevron Mining, Inc. and Unocal
Corporation, since the mid-1990s. All told, Ashburn has nearly 20 years combined service with
various companies that owned and/or operated the Mountain Pass mine, including, Chevron Mining,
Inc., Unocal Corporation and, finally, Molycorp.
33. Reinforcing the claim that Ashburn, along with other Molycorp senior executives,
monitored and was aware of material information regarding the existence, or lack thereof, of HREEs
at the Mountain Pass mine, the Company’s SEC filings stated that Ashburn’s incentive
compensation during the Class Period was primarily based upon “achieving various financial
objectives, such as ensuring full funding of Project Phoenix” (10% weighting) and “successful
completion of various [Project Phoenix] milestones related to our business modernization and
expansion plans, such as meeting schedule and cost targets, submitting applications and securing all
required [] permits” (40% weighting). For 2011, Ashburn was awarded $258,282 in incentive
compensation in connection with his monitoring and achievement of Project Phoenix milestones.
34. Defendant Ross R. Bhappu (“Bhappu”) was, at all relevant times, the Chairman of the
Board of Molycorp. During the Class Period, Bhappu participated in the issuance of false and/or
materially misleading statements and omissions and failed to disclose the true facts about the
capabilities of the Mountain Pass mine. In addition to issuing statements throughout the Class
Period, Bhappu repeatedly had the opportunity to correct misstatements and omissions by and on
behalf of Molycorp, but failed to do so. According to the Company’s SEC filings, Bhappu has been
associated with the mining industry for over 25 years and has a background in metallurgical
engineering and mining project finance. Bhappu was previously employed by Newmont Mining,
- 11 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 17 of 137
GTN Copper Corporation and Cyprus Minerals. According to the Company’s SEC filings, with
Bhappu’s “comprehensive knowledge of the mining industry . . ., [he] is a key member of [the
Company’s] Board of Directors.” Since 2005, Bhappu has been a partner of Resource Capital
Funds. Resource Capital Funds, along with the Traxys Group and Pegasus Capital Advisors, L.P.
(“Pegasus”) (discussed below), was a principal investor in connection with the acquisition of the
Mountain Pass mine from Chevron Mining, Inc. in 2008. During the Class Period, Bhappu reported
indirect sales of 13,769,319 shares of Molycorp common stock for proceeds of $694.2 million .
These insider sales amounted to 49.8% of Bhappu’s total Class Period holdings of Molycorp
common stock.
35. Defendant John L. Burba (“Burba”) was, at all relevant times, Executive Vice
President and Chief Technology Officer of Molycorp. During the Class Period, Burba participated
in the issuance of false and/or materially misleading statements and omissions and failed to disclose
the true facts about the capabilities of the Mountain Pass mine. In addition to issuing statements
during the Class Period, Burba continuously had the opportunity to correct misstatements and
omissions by and on behalf of Molycorp, including through his reported sale of 118,982 shares of
Molycorp common stock for proceeds of $6.0 million . These insider sales amounted to 34.7% of
Burba’s total Class Period holdings of Molycorp common stock.
36. Reinforcing the claim that Burba, along with other Molycorp senior executives,
monitored and was aware of material information regarding the existence, or lack thereof, of HREEs
at the Mountain Pass mine, the Company’s SEC filings stated that Burba’s incentive compensation
during the Class Period was primarily based upon “achieving various financial objectives, such as
ensuring full funding of Project Phoenix” (10% weighting) and “successful completion of various
- 12 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 18 of 137
[Project Phoenix] milestones related to our business modernization and expansion plans, such as
meeting schedule and cost targets, submitting applications and securing all required [] permits” (40%
weighting). For 2011, Burba was awarded $258,282 in incentive compensation in connection with
his monitoring and achievement of Project Phoenix milestones.
37. Defendant Craig M. Cogut (“Cogut”) was, at all relevant times, a managing director
at Pegasus Capital LLC, which controls Molycorp LLC, the entity that was formed to acquire the
Mountain Pass mine from Chevron Mining, Inc. During the Class Period, Cogut participated in the
issuance of false and/or materially misleading statements and omissions and failed to disclose the
true facts about the capabilities of the Mountain Pass mine. In addition to issuing statements
throughout the Class Period, Cogut continuously had the opportunity to correct misstatements and
omissions by and on behalf of Molycorp, but failed to do so. During the Class Period, Cogut
reported indirect sales of 12,270,073 shares of Molycorp common stock for proceeds of $618.7
million . These insider sales amounted to 50.1% of Cogut’s total Class Period holdings of Molycorp
common stock. Cogut is the founder and a partner of Pegasus. Pegasus, along with the Traxys
Group and Resource Capital Funds, was a principal investor in connection with the acquisition of the
Mountain Pass mine from Chevron Mining, Inc. in 2008. During the Class Period, Cogut and the
entities he controlled were beneficial owners of more than 5% of the outstanding common stock of
Molycorp.
38. Defendant Pegasus was, at all relevant times, a Delaware limited partnership with
offices at 505 Park Avenue, 21st floor, New York, New York. At the times specified herein,
Pegasus, through its owners, employees or agents, or the owners, employees or agents of its general
partners, limited partners and/or affiliates Pegasus Capital Advisors IV GP, LLC; Pegasus Capital
- 13 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 19 of 137
Advisors IV, L.P.; MP IH Holdings 1, LLC; MP IH Holdings 2, LLC; Pegasus Capital LLC;
Pegasus Investors IV GP, LLC; Pegasus Investors IV, L.P.; Pegasus Partners IV, L.P.; PP IV
Mountain Pass II, LLC; Pegasus Partners IV (AIV), L.P.; PP IV MP AIV 1, LLC; PP IV MP AIV 2,
LLC; PP IV MP AIV 3, LLC; and/or T-II Holdings, LLC; engaged in inside trading in violation of
§§10(b) and 20A of the 1934 Act (15 U.S.C. §§78j(b) and 78t(1)) and Rules 10b-5 and 10b5-1
promulgated thereunder by the SEC (17 C.F.R. §240.10b-5) at the direction of, and/or based on
material, adverse, non-public information provided by, Cogut who is the founder and managing
partner of Pegasus and/or defendant Mark Kristoff who is the CEO of T-II Holdings, LLC (both
discussed below). Moreover, Cogut had the power to control, and did control, Pegasus. During the
Class Period, Pegasus reported sales of 12,270,073 shares of Molycorp common stock for proceeds
of $618.7 million . These insider sales amounted to 50.1% of Pegasus’ total Class Period holdings of
Molycorp common stock.
39. Defendant Brian T. Dolan (“Dolan”) was, at all relevant times, a Director of
Molycorp. During the Class Period, Dolan participated in the issuance of false and/or materially
misleading statements and omissions and failed to disclose the true facts about the capabilities of the
Mountain Pass mine. In addition to issuing statements throughout the Class Period, Dolan
continuously had the opportunity to correct misstatements and omissions by and on behalf of
Molycorp, but failed to do so. During the Class Period, Dolan provided RCF Management, LLC
(“RCF”) (discussed below) with material, adverse, non-public information concerning Molycorp,
upon which it, directly, and Bhappu, indirectly, executed direct sales of 13,769,319 shares of
Molycorp common stock for proceeds of $694.2 million . These insider sales amounted to 49.8% of
RCF’s total Class Period holdings of Molycorp common stock.
- 14 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 20 of 137
40. Defendant RCF, was, at all relevant times, a Delaware limited liability corporation
doing business as Resource Capital Funds, with offices in this District at 1400 Sixteenth Street, Suite
200, Denver, Colorado. At the times specified herein, RCF, through its owners, employees or
agents, or the owners, employees or agents of its general partners, limited partners and/or affiliates
Resource Capital Associates IV, LP; Resource Capital Fund IV, LP; RCA IV GP, LLC; Resource
Capital Associates V, LP; Resource Capital Fund V, LP; RCA V GP, Ltd.; and/or RCF US
Holdings, L.P.; engaged in inside trading in violation of §§10(b) and 20A of the 1934 Act (15 U.S.C.
§§78j(b) and 78t(1)) and Rules 10b-5 and 10b5-1 promulgated thereunder by the SEC (17 C.F.R.
§240.10b-5) at the direction of, and/or based on material, adverse, non-public information provided
by, defendant Bhappu who is a partner at RCF and serves on RCF’s investment committee and
defendant Dolan who served as counsel for RCF from its inception until December 31, 2011.
Moreover, Bhappu had the power to control, and did control, RCF. During the Class Period, RCF
reported direct sales of 13,769,319 shares of Molycorp common stock for proceeds of $694.2
million . These insider sales amounted to 49.8% of RCF’s total Class Period holdings of Molycorp
common stock.
41. Defendant Mark Kristoff (“Kristoff”) was, at all relevant times, a Director of
Molycorp. Kristoff has been the CEO of the Traxys Group since April 2005, which is a global
trading, marketing and distribution concern. During the Class Period, Kristoff participated in the
issuance of false and/or materially misleading statements and omissions and failed to disclose the
true facts about the capabilities of the Mountain Pass mine. In addition to issuing statements
throughout the Class Period, Kristoff continuously had the opportunity to correct misstatements and
omissions by and on behalf of Molycorp, but failed to do so. During the Class Period, Kristoff
- 15 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 21 of 137
reported direct and indirect sales of 4,774,448 shares of Molycorp common stock for proceeds of
$240.7 million . These insider sales amounted to 52% of Kristoff’s total direct and indirect Class
Period holdings of Molycorp common stock. According to the Company’s SEC filings, “Kristoff’s
experience in global trading, financing, supply chain management, and distribution of metals and
[rare earth elements] provides valuable insight to [Molycorp’s] Board of Directors regarding existing
and potential opportunities in the rare earths markets.” The Traxys Group, along with Pegasus and
Resource Capital Funds, was a principal investor in connection with the acquisition of the Mountain
Pass mine from Chevron Mining, Inc. in 2008.
42. Defendant T-II Holdings, LLC (“T-II Holdings”), was, at all relevant times, an
Anguillan limited liability corporation with offices at 825 Third Avenue, 9th Floor, New York, New
York. At the times specified herein, T-II Holdings, through its owners, employees or agents, or the
owners, employees or agents of its wholly owned companies, subsidiaries and/or affiliates Pegasus,
TNA Moly Group LLC (“TNA Moly”); Traxys S.a.r.l. (“Traxys S”); and Traxys North America,
LLC (“Traxys”); engaged in inside trading in violation of §§10(b) and 20A of the 1934 Act (15
U.S.C. §§78j(b) and 78t(1)) and Rules 10b-5 and 10b5-1 promulgated thereunder by the SEC (17
C.F.R. §240.10b-5) at the direction of, and/or based on material, adverse, non-public information
provided by, defendant Kristoff who is the CEO of T-II Holdings, TNA Moly, Traxys S and Traxys
and/or defendant Cogut who is the founder and managing partner of Pegasus. During the Class
Period, T-II Holdings reported sales of 4,584,710 shares of Molycorp common stock for proceeds of
over $230 million . These insider sales amounted to 52% of T-II Holdings’ total Class Period
holdings of Molycorp common stock.
- 16 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 22 of 137
43. Defendant Charles R. Henry (“Henry”) was, at all relevant times, a Director of
Molycorp. During the Class Period, Henry participated in the issuance of false and/or materially
misleading statements and omissions and failed to disclose the true facts about the capabilities of the
Mountain Pass mine. In addition to issuing statements throughout the Class Period, Henry
continuously had the opportunity to correct misstatements and omissions by and on behalf of
Molycorp, but failed to do so. During the Class Period, Henry reported direct sales of 69,000 shares
of Molycorp common stock for proceeds of $3.5 million . These insider sales amounted to 51% of
Henry’s total Class Period holdings of Molycorp common stock. According to the Company’s SEC
filings, Henry’s “strong background in management . . . brings significant organizational acumen to
[Molycorp’s] Board of Directors.”
44. Defendant Jack E. Thompson (“Thompson”) was, at all relevant times, a Director of
Molycorp. During the Class Period, Thompson participated in the issuance of false and/or materially
misleading statements and omissions and failed to disclose the true facts about the capabilities of the
Mountain Pass mine. In addition to issuing statements throughout the Class Period, Thompson
continuously had the opportunity to correct misstatements and omissions by and on behalf of
Molycorp, but failed to do so. During the Class Period, Thompson reported direct sales of 63,706
shares of Molycorp common stock for proceeds of $3.2 million . These insider sales amounted to
47.9% of Thompson’s total Class Period holdings of Molycorp common stock. According to the
Company’s SEC filings, Thompson served on a number of board of directors of mining companies
and “brings extensive knowledge of the mining industry and broad management experience to [the
Company’s] Board of Directors.”
- 17 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 23 of 137
45. Defendants Molycorp, Smith, KMSMITH, Allen, Ashburn, Bhappu, Dolan, RCF,
Burba, Cogut, Pegasus, Kristoff, T-II Holdings, Henry and Thompson are referred to herein
collectively as the “1934 Act Defendants.”
46. Defendants Smith, KMSMITH, Allen, Ashburn, Bhappu, Dolan, RCF, Burba, Cogut,
Pegasus, Kristoff, T-II Holdings, Henry and Thompson are referred to herein collectively as the
“Insider Selling Defendants.”
The 1933 Act Defendants
47. On February 11, 2011, Molycorp issued 2.07 million shares of Preferred Stock to
trade under the symbol “MCP-PA.” The registration statements for the Preferred Stock IPO were
signed and filed with the SEC on or about February 7 and February 10, 2011. Molycorp is
statutorily liable under §§11 and 12 of the 1933 Act for the materially untrue statements incorporated
and contained in the Preferred Stock IPO offering documents. Molycorp also was responsible for
the issuance of the materially untrue statements incorporated in the June 10, 2011 Secondary
Offering of its common stock and, therefore, is liable under §§11 and 12 of the 1933 Act for the
materially untrue statements incorporated and contained in the Secondary Offering documents. The
registration statement for the Secondary Offering was filed with the SEC on June 7, 2011.
48. As alleged above, defendant Smith was, at all relevant times, CEO, President and a
Director of Molycorp. Smith signed the Company’s February 7 and February 10, 2011 registration
statements for the February 11, 2011 Preferred Stock IPO and the June 7, 2011 registration statement
for the June 10, 2011 Secondary Offering of common stock, which were then incorporated into the
preferred stock and common stock offering prospectuses. Smith was a member of the Board of
Directors at the time of the offerings. Smith is statutorily liable under §§11, 12 and/or 15 of the
- 18 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 24 of 137
1933 Act for the materially untrue statements incorporated and contained in the offering documents.
Smith failed to perform adequate due diligence and/or did not possess reasonable grounds for the
belief that the statements contained in and incorporated in the offering documents were true and
without omissions of any material facts and were not misleading.
49. As alleged above, defendant Allen was, at all relevant times, CFO and Treasurer of
Molycorp. Allen signed the Company’s February 7 and February 10, 2011 registration statements
for the February 11, 2011 Preferred Stock IPO and the June 7, 2011 registration statement for the
June 10, 2011 Secondary Offering of common stock, which were then incorporated into the
preferred stock and common stock offering prospectuses. Allen is statutorily liable under §§11, 12
and/or 15 of the 1933 Act for the materially untrue statements incorporated and contained in the
offering documents. Allen failed to perform adequate due diligence and/or did not possess
reasonable grounds for the belief that the statements contained in and incorporated in the offering
documents were true and without omissions of any material facts and were not misleading.
50. As alleged above, defendant Ashburn was, at all relevant times Executive Vice
President and General Counsel of Molycorp. Ashburn signed the Company’s February 7 and
February 10, 2011 registration statements for the February 11, 2011 Preferred Stock IPO and the
June 7, 2011 registration statement for the June 10, 2011 Secondary Offering of common stock,
which were then incorporated into the preferred stock and common stock offering prospectuses.
Ashburn is statutorily liable under §§11, 12 and/or 15 of the 1933 Act for the materially untrue
statements incorporated and contained in the offering documents. Ashburn failed to perform
adequate due diligence and/or did not possess reasonable grounds for the belief that the statements
- 19 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 25 of 137
contained in and incorporated in the offering documents were true and without omissions of any
material facts and were not misleading.
51. Defendant Russell D. Ball (“Ball”) was, at all relevant times, a Director of Molycorp.
According to the Company’s SEC filings, “Ball brings a unique and important understanding of
finance and accounting in the international mining industry to our Board of Directors.” Ball signed
the Company’s February 7 and February 10, 2011 registration statements for the February 11, 2011
Preferred Stock IPO and the June 7, 2011 registration statement for the June 10, 2011 Secondary
Offering of common stock, which were then incorporated into the preferred stock and common stock
offering prospectuses. Ball is statutorily liable under §§11, 12 and/or 15 of the 1933 Act for the
materially untrue statements incorporated and contained in the offering documents. Ball failed to
perform adequate due diligence and/or did not possess reasonable grounds for the belief that the
statements contained in and incorporated in the offering documents were true and without omissions
of any material facts and were not misleading.
52. As alleged above, defendant Bhappu, was at all relevant times, the Chairman of the
Board of Molycorp. Bhappu signed the Company’s February 7 and February 10, 2011 registration
statements for the February 11, 2011 Preferred Stock IPO and the June 7, 2011 registration statement
for June 10, 2011 Secondary Offering of common stock, which were then incorporated into the
preferred stock and common stock offering prospectuses. Bhappu is statutorily liable under §§11, 12
and/or 15 of the 1933 Act for the materially untrue statements incorporated and contained in the
offering documents. Bhappu failed to perform adequate due diligence and/or did not possess
reasonable grounds for the belief that the statements contained in and incorporated in the offering
documents were true and without omissions of any material facts and were not misleading.
- 20 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 26 of 137
53. As alleged above, defendant Cogut was a controlling shareholder of Molycorp.
Cogut signed the Company’s February 7 and February 10, 2011 registration statements for the
February 11, 2011 Preferred Stock IPO and the June 7, 2011 registration statement for the June 10,
2011 Secondary Offering of common stock, which were then incorporated into the preferred stock
and common stock offering prospectuses. Cogut is statutorily liable under §§11, 12 and/or 15 of the
1933 Act for the materially untrue statements incorporated and contained in the offering documents.
Cogut failed to perform adequate due diligence and/or did not possess reasonable grounds for the
belief that the statements contained in and incorporated in the offering documents were true and
without omissions of any material facts and were not misleading.
54. As alleged above, defendant Dolan was, at all relevant times, a Director of Molycorp.
Dolan signed the Company’s February 7 and February 10, 2011 registration statements for the
February 11, 2011 Preferred Stock IPO and the June 7, 2011 registration statement for the June 10,
2011 Secondary Offering of common stock, which were then incorporated into the preferred stock
and common stock offering prospectuses. Dolan is statutorily liable under §§11, 12 and/or 15 of the
1933 Act for the materially untrue statements incorporated and contained in the offering documents.
Dolan failed to perform adequate due diligence and/or did not possess reasonable grounds for the
belief that the statements contained in and incorporated in the offering documents were true and
without omissions of any material facts and were not misleading.
55. As alleged above, defendant Kristoff was, at all relevant times, a Director of
Molycorp. Kristoff signed the Company’s February 7 and February 10, 2011 registration statements
for the February 11, 2011 Preferred Stock IPO and the June 7, 2011 registration statement for the
June 10, 2011 Secondary Offering of common stock, which were then incorporated into the
- 21 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 27 of 137
preferred stock and common stock offering prospectuses. Kristoff is statutorily liable under §§11,
12 and/or 15 of the 1933 Act for the materially untrue statements incorporated and contained in the
offering documents. Kristoff failed to perform adequate due diligence and/or did not possess
reasonable grounds for the belief that the statements contained in and incorporated in the offering
documents were true and without omissions of any material facts and were not misleading.
56. Defendant Alec Machiels (“Machiels”) was, at all relevant times, a Director of
Molycorp. According to the Company’s SEC filings, Machiels’ “strong background in financial
management and investment in commodity-related businesses provides [the Company’s] Board of
Directors with a valuable perspective on strategic, financial and capital raising matters.” Machiels
signed the Company’s February 7 and February 10, 2011 registration statements for the February 11,
2011 Preferred Stock IPO and the June 7, 2011 registration statement for the June 10, 2011
Secondary Offering, which were then incorporated into the preferred stock and common stock
offering prospectuses. Machiels is statutorily liable under §§11, 12 and/or 15 of the 1933 Act for the
materially untrue statements incorporated and contained in the offering documents. Machiels failed
to perform adequate due diligence and/or did not possess reasonable grounds for the belief that the
statements contained in and incorporated in the offering documents were true and without omissions
of any material facts and were not misleading.
57. As alleged above, defendant Henry was, at all relevant times, a Director of Molycorp.
Henry signed the Company’s February 7 and February 10, 2011 registration statements for the
February 11, 2011 Preferred Stock IPO and the June 7, 2011 registration statement for the June 10,
2011 Secondary Offering of common stock, which were then incorporated into the preferred stock
and common stock offering prospectuses. Henry is statutorily liable under §§11, 12 and/or 15 of the
- 22 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 28 of 137
1933 Act for the materially untrue statements incorporated and contained in the offering documents.
Henry failed to perform adequate due diligence and/or did not possess reasonable grounds for the
belief that the statements contained in and incorporated in the offering documents were true and
without omissions of any material facts and were not misleading.
58. As alleged above, defendant Thompson was, at all relevant times, a Director of
Molycorp. Thompson signed the Company’s February 7 and February 10, 2011 registration
statements for the February 11, 2011 Preferred Stock IPO and the June 7, 2011 registration statement
for the June 10, 2011 Secondary Offering of common stock, which were then incorporated into the
preferred stock and common stock offering prospectuses. Thompson is statutorily liable under §§11,
12 and/or 15 of the 1933 Act for the materially untrue statements incorporated and contained in the
offering documents. Thompson failed to perform adequate due diligence and/or did not possess
reasonable grounds for the belief that the statements contained in and incorporated in the offering
documents were true and without omissions of any material facts and were not misleading.
59. Defendant Morgan Stanley & Co. Incorporated acted as a lead underwriter of the IPO
of 2.07 million shares of Molycorp Preferred Stock in February 2011. Morgan Stanley & Co. LLC
acted as a lead underwriter of the Secondary Offering of 11.5 million shares of Molycorp common
stock in June 2011. Morgan Stanley & Co. Incorporated and Morgan Stanley & Co. LLC are
collectively referred to herein as “Morgan Stanley”. Morgan Stanley is statutorily liable under §§12
and/or 15 of the 1933 Act for the materially untrue statements incorporated and contained in the
offering documents. Morgan Stanley failed to perform adequate due diligence and/or did not possess
reasonable grounds for the belief that the statements contained in and incorporated in the offering
documents were true and without omissions of any material facts and were not misleading.
- 23 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 29 of 137
60. Defendant J.P. Morgan Securities LLC (“J.P. Morgan”) acted as a lead underwriter of
the IPO of 2.07 million shares of Molycorp Preferred Stock in February 2011. J.P. Morgan also
acted as a lead underwriter of the Secondary Offering of 11.5 million shares of Molycorp common
stock in June 2011. J.P. Morgan is statutorily liable under §§12 and/or 15 of the 1933 Act for the
materially untrue statements incorporated and contained in the offering documents. J.P. Morgan
failed to perform adequate due diligence and/or did not possess reasonable grounds for the belief that
the statements contained in and incorporated in the offering documents were true and without
omissions of any material facts and were not misleading.
61. Defendant Knight Capital Americas, L.P. (“Knight”) acted as an additional
underwriter of the Secondary Offering of 11.5 million shares of Molycorp common stock in June
2011. Knight is statutorily liable under §§12 and/or 15 of the 1933 Act for the materially untrue
statements incorporated and contained in the offering documents. Knight failed to perform adequate
due diligence and/or did not possess reasonable grounds for the belief that the statements contained
in and incorporated in the offering documents were true and without omissions of any material facts
and were not misleading.
62. Defendant Dahlman Rose & Company, LLC (“Dahlman”) acted as an additional
underwriter of the Secondary Offering of 11.5 million shares of Molycorp common stock in June
2011. Dahlman is statutorily liable under §§12 and/or 15 of the 1933 Act for the materially untrue
statements incorporated and contained in the offering documents. Dahlman failed to perform
adequate due diligence and/or did not possess reasonable grounds for the belief that the statements
contained in and incorporated in the offering documents were true and without omissions of any
material facts and were not misleading.
- 24 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 30 of 137
63. Defendant Stifel, Nicolaus & Company Incorporated (“Stifel”) acted as an additional
underwriter of the Secondary Offering of 11.5 million shares of Molycorp common stock in June
2011. Stifel is statutorily liable under §§12 and/or 15 of the 1933 Act for the materially untrue
statements incorporated and contained in the offering documents. Stifel failed to perform adequate
due diligence and/or did not possess reasonable grounds for the belief that the statements contained
in and incorporated in the offering documents were true and without omissions of any material facts
and were not misleading.
64. Defendant BNP Paribas Securities Corp. (“BNP”) acted as an additional underwriter
of the Secondary Offering of 11.5 million shares of Molycorp common stock in June 2011. BNP is
statutorily liable under §§12 and/or 15 of the 1933 Act for the materially untrue statements
incorporated and contained in the offering documents. BNP failed to perform adequate due
diligence and/or did not possess reasonable grounds for the belief that the statements contained in
and incorporated in the offering documents were true and without omissions of any material facts
and were not misleading.
65. Defendant CIBC World Markets Corp. (“CIBC”) acted as an additional underwriter
of the Secondary Offering of 11.5 million shares of Molycorp common stock in June 2011. CIBC is
statutorily liable under §§12 and/or 15 of the 1933 Act for the materially untrue statements
incorporated and contained in the offering documents. CIBC failed to perform adequate due
diligence and/or did not possess reasonable grounds for the belief that the statements contained in
and incorporated in the offering documents were true and without omissions of any material facts
and were not misleading.
- 25 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 31 of 137
66. Defendant Piper Jaffray & Co. (“Piper Jaffray”) acted as an additional underwriter of
the Secondary Offering of 11.5 million shares of Molycorp common stock in June 2011. Piper
Jaffray is statutorily liable under §§12 and/or 15 of the 1933 Act for the materially untrue statements
incorporated and contained in the offering documents. Piper Jaffray failed to perform adequate due
diligence and/or did not possess reasonable grounds for the belief that the statements contained in
and incorporated in the offering documents were true and without omissions of any material facts
and were not misleading.
67. Defendant RBS Securities Inc. (“RBS”) acted as an additional underwriter of the
Secondary Offering of 11.5 million shares of Molycorp common stock in June 2011. RBS is
statutorily liable under §§12 and/or 15 of the 1933 Act for the materially untrue statements
incorporated and contained in the offering documents. RBS failed to perform adequate due diligence
and/or did not possess reasonable grounds for the belief that the statements contained in and
incorporated in the offering documents were true and without omissions of any material facts and
were not misleading.
68. Defendants Morgan Stanley, J.P. Morgan, Knight, Dahlman, Stifel, BNP, CIBC,
Piper Jaffray and RBS are collectively referred to herein as the “Underwriter Defendants.” The
Underwriter Defendants shared $5.9 million and $20.4 million in underwriting fees in connection
with the February 2011 Preferred Stock IPO and the June 2011 common stock Secondary Offering,
respectively.
69. Defendants Molycorp, Smith, Allen, Ashburn, Ball, Bhappu, Cogut, Dolan, Kristoff,
Machiels, Henry, Thompson, Morgan Stanley, J.P. Morgan, Knight, Dahlman, Stifel, BNP, CIBC,
Piper Jaffray and RBS are collectively referred to herein as the “1933 Act Defendants.”
- 26 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 32 of 137
Control Person/Group Published Information Allegations
70. It is appropriate to treat the 1934 Act Defendants, except Molycorp, collectively as a
group for pleading purposes and to presume that the materially false, misleading and incomplete
information conveyed in the Company’s public filings, press releases and public statements, as
alleged herein was the result of the collective actions of the 1934 Act Defendants identified above.
The 1934 Act Defendants, by virtue of their high-level positions within the Company, directly
participated in the management of the Company, were directly involved in the day-to-day operations
of the Company at the highest levels and were privy to confidential proprietary information
concerning the Company and its business, operations, prospects, growth, finances and financial
condition, as alleged herein.
71. The 1934 Act Defendants were involved in drafting, producing, reviewing, approving
and/or disseminating the materially false and misleading statements and information alleged herein,
were aware of or recklessly disregarded the fact that materially false and misleading statements were
being issued regarding the Company, and approved or ratified these statements, in violation of
securities laws.
72. As officers and controlling persons of a publicly-held company whose common stock
was, and is, registered with the SEC pursuant to the 1934 Act, and was traded on the New York
Stock Exchange (“NYSE”), and governed by the provisions of the federal securities laws, the 1934
Act Defendants each had a duty to promptly disseminate accurate and truthful information with
respect to the Company’s financial condition and performance, growth, operations, financial
statements, business, markets, management, earnings, present and future business prospects, and to
correct any previously issued statements that had become materially misleading or untrue, so that the
- 27 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 33 of 137
market price of the Company’s publicly-traded securities would be based upon truthful and accurate
information. The 1934 Act Defendants’ material misrepresentations and omissions during the Class
Period violated these specific requirements and obligations.
73. The 1934 Act Defendants, by virtue of their positions of control and authority as
officers and/or directors of Molycorp, were able to and did control the content of the various SEC
filings, press releases and other public statements pertaining to the Company during the Class
Period. As such, the 1934 Act Defendants were controlling persons of Molycorp within the meaning
of §20(a) of the 1934 Act. Further, the 1934 Act Defendants were provided with copies of the
documents alleged herein to be misleading prior to or shortly after their issuance and/or had the
ability and/or opportunity to prevent their issuance or cause them to be corrected. Accordingly, they
are responsible for the accuracy of the public reports and releases detailed herein.
74. With respect to the 1934 Act claims, each of the 1934 Act Defendants is liable as a
participant in a scheme, plan and course of conduct that operated as a fraud and deceit on Class
Period purchasers of the Company’s securities. Throughout the Class Period, defendants
disseminated materially false and misleading statements and suppressed material adverse facts about
the Company.
75. Among other actionable conduct detailed herein, the 1934 Act Defendants, inter alia ,
failed to timely disclose that the Mountain Pass mine would not produce commercially viable
amounts of HREE, particularly dysprosium and terbium as daily analyses of 20 to 30 samples of
Mountain Pass ore revealed that these elements could not be obtained in commercially significant
quantities from the mine. During investigations of float tests, which is a process that physically
separates particles of different REEs based on the ability of air bubble to selectively adhere to
- 28 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 34 of 137
mineral surfaces in a mineral/water slurry, of Mountain Pass ore conducted during the Class Period,
the Company failed to identify commercially significant quantities of HREE at Mountain Pass.
Further, internal reports dated as far back as 2009 indicated that HREE did not exist at Mountain
Pass mine and that lack of HREEs at Mountain Pass mine were recorded in lab notebooks and
reported in Molycorp’s computerized Laboratory Information Management System (known
internally at Molycorp as “LIMS”), which was widely accessible to the Company personnel,
including Company management.
SUBSTANTIVE ALLEGATIONS
Background
76. In 1949, REEs were discovered at the Mountain Pass mine, which is located just
north of the unincorporated community of Mountain Pass, California. The next year, Molybdenum
Corporation of America acquired the mining claims at Mountain Pass. In 1952, production of
certain LREEs first began under the auspices of Molybdenum Corporation of America.
77. During the 1960s and through the 1980s, the Mountain Pass mine was the world’s
dominant source of rare earth oxides. The increase of the Company’s production during that time
period was driven by the Company’s low-cost production and the rapid rise in demand for LREEs,
particularly europium for use in television and computer monitors, and cerium for glass polishing.
By 2000, however, virtually all such LREEs were imported from China. Due to the huge supply of
LREEs in China and a series of environmental/regulator problems ( e.g. , a pipeline spill of
contaminated water), production of REEs ceased at the Mountain Pass mine in 2002. Since 2002,
the U.S. has lost virtually all of its capacity in the global rare earth supply chain.
- 29 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 35 of 137
78. At the time Mountain Pass ceased producing REEs in 2002, Unocal Corporation
owned the mine and, in 2005, sold the facility to Chevron Mining, Inc. Molycorp Minerals, LLC,
was formed in June 12, 2008 to purchase the Mountain Pass mine from Chevron Mining, Inc.
Thereafter, Molycorp Minerals, LLC embarked on a campaign to return Mountain Pass to the
position of a dominant global player in the REE market – versus a dormant strip mining property –
through what was known as the “mine-to-magnets” strategy. In March 2010, Molycorp was formed
for the purpose of taking the Company public.
79. On July 29, 2010, Molycorp became a publicly-traded firm through the IPO of 28.1
million shares at $14.00 per share. The Company’s common stock trades under the ticker symbol
“MCP” on the NYSE.
Molycorp’s Modernization and Expansion Plan for Mountain Pass: “Project Phoenix”
80. In view of purported “strong industry fundamentals” and “reduced Chinese supply
and strong price increases” for REEs, beginning in 2010, the Company began the process of
recommencing mining operations at Mountain Pass and planning for the modernization and
expansion of the facility. One of the purposes underlying the modernization and expansion plan of
Mountain Pass was to achieve the Company’s “mine-to-magnets” strategy, which would purportedly
make Molycorp the only vertically integrated producer of high-performance permanent rare earth
magnets that would incorporate the use of highly-valued HREEs such as dysprosium and terbium.
Repeatedly through the Class Period, defendants assured investors that demand for these products
was expected to increase in a range between 10%-15% annually through 2015. The defendants
continually piqued investors’ interest in the Company by stressing that China now produced virtually
all REEs globally, was restricting its exports to the rest of the world, while China’s internal
- 30 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 36 of 137
consumption continued to expand. Indeed, Molycorp was to be the answer to Chinese dominance,
particularly as it related to HREEs.
81. During the Class Period, the Company’s modernization and expansion plan for
Mountain Pass was referred to by defendants as “Project Phoenix.” Phase I of Project Phoenix
envisions the production rate of 19,500 metric tons of REE oxides from Mountain Pass by no later
than the end of 2012. Phase II of Project Phoenix, which largely requires the completion of
advanced mechanical mining operations at Mountain Pass, envisions the production of 40,000 metric
tons of REE oxides as early as mid-2013.
82. According to the Company’s public filings with the SEC and various presentations
made to investors, not only would Molycorp produce HREEs during Phase I and II of Project
Phoenix, but the Company would transport dysprosium and terbium mined from Mountain Pass to
off-site facilities to produce rare earth metals and alloys. The Company’s public filings also claimed
that, the metal and alloy production would occur at Mountain Pass. The Company’s public filings
with the SEC specifically stated that defendants Smith, Allen, Ashburn and Burba’s compensation
during the Class Period was directly tied to their ability to hit specific Project Phoenix completion
milestones. As such, throughout the Class Period, defendants Smith, Allen, Ashburn and Burba had
intimate knowledge of the status of Project Phoenix, as well as knowledge of whether commercial
volume of HREEs, particularly dysprosium and terbium, existed at Mountain Pass at all.
Defendants’ Unlawful Scheme
83. Just like the “gold-rush” days of the 19th century, defendants assured eager investors
that the development of the Mountain Pass mine was a sure-bet to meet growing global demand for
REEs, as well as to address global scarcity. For example, defendants repeatedly informed investors:
- 31 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 37 of 137
China has dominated the global supply of [rare earth oxides or “REOs”] for the last ten years and, according to IMCOA, accounted for approximately 97% of global REO production in 2008. Even with our planned production, global supply is expected by analysts to remain tight due to the combined effects of growing demand and actions taken by the Chinese government to restrict exports. . . . China’s internal consumption of rare earths is expected to continue to grow, leaving the Rest of World with less supply during a period of projected increasing global demand.
* * *
IMCOA estimates there is a [sic] currently a global deficit in REO supply, which anticipated [sic] to continue without the advent of production from new projects, such as Mountain Pass. Limits on rare earth exports from China and the lack of available substitutes make the development of new sources of REEs essential to meet the growing demand for existing and emerging technologies . . . .
84. Further, with respect to valuable, highly-valued HREEs, such as dysprosium and
terbium, defendants misleadingly informed investors that the Mountain Pass mine would be a
commercially significant source of supply. For instance, defendants stated: “ [w]e’ll be producing 10
different rare earth elements as part of Phase 1 and as part of Phase 2 [of ‘Project Phoenix’], and
that will be . . . Dysprosium [and] Terbium ”; “we look at these [heavy] rare earth elements that
[Molycorp will] be producing in commercial quantities ”; “[w]e intend to transport . . . dysprosium
[and] terbium . . . from our Mountain Pass facility to Molycorp Silmet AS and MMA to produce
rare earth metals and alloys ”; “[t]hat’s all from the Mountain Pass rare earth ore body” ; and
“what it does is it really makes it sound as if – the deposit like that Mountain Pass deposits is
disadvantaged on that [HREE] side and, in fact, what it’s really saying is, is that we have a very
high ore grade .” Defendants also falsely assured investors during the Class Period that the
Mountain Pass mine was particularly crucial given the “ lack of available substitutes ” for rare earth
oxides at a time of a “global deficit” in supply. Further, defendants maintained their rouse by failing
to inform investors that in August 2011, joint-venture discussions with Hitachi Metals to
- 32 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 38 of 137
manufacture magnets utilizing HREEs – pursuant to the Company’s purported “mine-to-magnets”
strategy – collapsed because Hitachi Metals had concluded that there were not commercial volumes
of HREEs at Mountain Pass.
85. Defendants’ Class Period statements regarding the Mountain Pass mine being a
source of commercial quantities of HREEs were critical to investors and their investment decisions.
For instance, the U.S. Department of Energy (“DOE”) has concluded that between 2011 and 2015,
dysprosium and terbium will be crucial to the clean energy industry and the elements would suffer
critically high supply shortages for the foreseeable future. The 2011 DOE report made several
critical conclusions in this regard:
Manufactures of wind power and electric vehicle technologies are pursuing strategies to respond to possible rare earth shortages. Permanent magnets (PMs) containing neodymium and dysprosium are used in wind turbine generators and electric vehicle (EV) motors. These REEs have highly valued magnetic and thermal properties . Manufacturers of both technologies are currently making decisions on future system design, trading off the performance benefits of neodymium and dysprosium against vulnerability to potential supply shortages. For example. wind turbine manufacturers are deciding among gear-driven, hybrid and direct-drive systems, with varying levels of rare earth content. Some EV manufacturers are pursuing rare-earth-free induction motors or switched reluctance motors as alternatives to PM motors.
As lighting energy efficiency standards are implemented globally, heavy rare earths used in lighting phosphors may be in short supply. In the United States, two sets of lighting energy efficiency standards that come into effect in 2012 will likely increase demand for fluorescent lamps containing phosphors made with europium, terbium and yttrium. The first set of standards applies to general service bulbs. The second set of standards applies to linear fluorescent lamps (LFLs). The projected increase in U.S. demand for CFLs and efficient LFLs corresponds to a projected increase in global CFL demand, suggesting upward price pressures for rare earth phosphors in the 2012-2014 timeframe, when europium, terbium and yttrium will be in short supply. In the future, light-emitting diodes (which are highly efficient and have much lower rare earth content) are expected to play a growing role in the market, reducing the pressure on rare earth supplies.
- 33 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 39 of 137
86. Neodymium (“NdFeb”) magnets, which are critical components in “green”
technologies and for the purpose of miniaturizing electronics, are primarily manufactured in China
(approximately 80%) and Japan (approximately 20%). Specifically, NdFeb magnets are utilized for
hybrid electric, plug-in hybrids and pure electric vehicle motors. The HREE dysprosium is an
important ingredient in these magnets enabling electrical vehicle motors to continue to provide
efficient power as the magnets reach service temperature of 160 degrees Celsius (320 degrees
Fahrenheit). The HREE terbium is also utilized in NdFeb magnets for cooling and efficiency
purposes. Whether dysprosium and terbium actually existed at Mountain Pass, therefore, was
critical to the success of the Company’s “mine-to-magnets” strategy and, thus, to the Company’s
investors.
87. Unfortunately, however, the capabilities of Mountain Pass, as repeatedly touted by
defendants, were little more than hype. As prices for REEs skyrocketed in 2011, customers began
switching to viable substitutes, which Molycorp had repeatedly assured investors did not exist. Even
more importantly, and in complete contradiction to defendants’ Class Period assurances, the
Mountain Pass ore body did not contain commercially viable quantities of the highly-valued HREEs
dysprosium and terbium. With knowledge and/or reckless disregard of these materially adverse
non-public facts, the Insider Selling Defendants unloaded 31,419,972 million shares of their
personal holdings of the Company’s common stock, generating a staggering $1,584,366,300 in
unlawful insider trading proceeds between February and June 2011 . This amounted to the sale of
between 21% and 51% of the Insider Selling Defendants total holdings of Molycorp stock.
Furthermore, the Insider Selling Defendants’ cost basis for those shares was no more than $14.00 per
share – yet they were sold to investors at $50.00 to $51.00 per share. As a Byron Capital Markets
- 34 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 40 of 137
analyst later characterized this massive amount of insider selling, “‘ this isn’t diversification, this is
an abandonment .’” In addition, Molycorp’s “Code of Business Conduct and Ethics” condemned
the trading “in Company stock on the basis of material, non-public information concerning the
Company.” Indeed, the volume of inside trading in dollars is by far the largest in any securities
fraud case commenced in the Tenth Circuit.
88. The Insider Selling Defendants’ sale of 31.4 million shares of Molycorp common
stock between February and June 2011, at prices ranging from $50 to $51 per share, was well-timed
to take advantage of the artificial inflation in the Company’s stock price and was accomplished
shortly before disclosure of the alleged fraud. Immediately upon the expiration of the lockout period
following Molycorp’s July 2010 IPO, the Insider Selling Defendants began to dump, in a
coordinated fashion, massive amounts of their holdings in Molycorp common stock. All of these
sales occurred prior to September 20, 2011, when it was revealed demand for Molycorp’s primary
REE, lanthanum, was significantly reduced because end-users of the element were switching to
viable substitute products. The Insider Selling Defendants also reaped their unlawful insider trading
proceeds prior to November 2011, when news entered the market that Molycorp did not have
commercially viable amounts of HREEs at Mountain Pass and that these elements would not be
produced during the first two phases of Project Phoenix. In reaction to these September and
November 2011 disclosures, the Company’s common stock suffered devastating price drops,
ultimately closing at $33.45 per share on November 11, 2011. The prices of the Company’s
preferred stock similarly suffered significant price declines on the same days.
89. Defendants’ Class Period conduct also allowed the Company to acquire Silmet Grupp
in a stock-based acquisition on more favorable terms had investors known the truth concerning the
- 35 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 41 of 137
capabilities of the Mountain Pass mine, as well as to obtain $230,000,000 in proceeds from a private
placement of convertible senior notes.
SUMMARY OF SCIENTER ALLEGATIONS
Defendants’ Knowledge or Reckless Disregard of Materially Adverse Non-Public Facts
90. Throughout the Class Period, defendants knew, or recklessly disregarded, the true
facts concerning the operational prospects of the Mountain Pass mine, including the fact that the
Mountain Pass ore body did not contain commercially viable amounts of critical HREEs, including
dysprosium and terbium. These two elements were critical to the Company’s “mines-to-magnets”
business strategy. Indeed, terbium and dysprosium were among the few REEs that maintained price
stability in 2011 and were forecast to be in supply shortages over the next couple of decades.
91. Given the importance of the HREEs and, in particular, Molycorp’s HREE business,
investor attention was focused on those elements and how they would likely affect the Company’s
financial results. In turn, defendants Smith, Allen and Burba held themselves out to investors and
the market as the persons most knowledgeable at Molycorp about the operations of the Mountain
Pass mine, as well as the mine’s potential to produce commercially significant volumes of critical
HREEs. As detailed in ¶¶24, 29, 36, 107-111, 115-117, 121-122, 127-129, 133-134, 138, 143, 146,
each of these defendants communicated with investors and analysts during the Class Period and
represented that they were informed of and knowledgeable about, inter alia , Mountain Pass mine
operations, the status of each stage of Mountain Pass modernization – i.e. , Project Phoenix – the
Company’s strategies to maximize HREE production and the mineralization content of the Mountain
Pass ore body. At no time during their communications with investors on these matters did any of
these defendants assert that they were uninformed about any material aspect of these topics; rather,
- 36 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 42 of 137
the Company touted, for example, defendant Smith’s over 24 years of exposure to “the operation and
development” of the Mountain Pass mine at the time he made the false and/or misleading statements
and omissions as alleged herein.
92. Defendants not only held themselves out as knowledgeable about the capabilities of
the Mountain Pass mine, but they were incentivized to monitor and meet critical milestones
concerning the operation status of the Mountain Pass mine and the progress of Project Phoenix. For
example, according to Molycorp’s SEC filings, defendants Smith, Allen, Ashburn and Burba were
awarded over $1.5 million for purportedly meeting or beating Project Phoenix deadlines during
2011. Further, defendant Smith, together with the Company’s senior officers, including defendants
Allen, Ashburn and Burba “regularly review[ed] material strategic, financial, operational, legal and
compliance” issues with the Company’s Board of Directors concerning Mountain Pass.
As defendant Smith stated on October 20, 2011, “[t]he Board of Directors has made a decision on
some information that our management team prepared for them and presented to them . . . the last
two days. And it has to do with acceleration of Project Phoenix . . . . [T]he way Dr. Burba and his
team have redone the schedule for . . . [P]roject [Phoenix] substantially de-risks our startup efforts as
well.”
93. Concurrent with their claims of personal knowledge and active involvement
concerning Mountain Pass and Project Phoenix, defendants Smith and Allen publicly certified in
each of the Company’s Class Period SEC filings that they had personally “evaluated [Molycorp’s]
disclosure controls and procedures” and “concluded that such procedures are effective.” Smith and
Allen further certified that Molycorp’s internal controls were designed to and did, keep them
- 37 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 43 of 137
apprised of all material facts about the operations of Molycorp, including material facts about the
mineralization content of the Mountain Pass mine.
94. Defendants Smith, Allen, Ashburn and Burba, consistent with being key executives
charged with running Molycorp and being handsomely compensated for keeping themselves
informed of and meeting or beating Project Phoenix timelines, had access to critical, non-public
adverse facts and information concerning the operational capabilities of the Mountain Pass mine.
For instance, according to former Molycorp employees, including a mining equipment operator,
analytical chemist and geologist, there were not commercially significant volumes of HREEs in the
Mountain Pass ore body or in the Molycorp stockpiles. Specifically, according to a former
Molycorp analytical chemist, 20 to 30 samples of Mountain Pass ore, including from stockpiles,
were analyzed on a daily basis before and during the Class Period and each test showed that there
were no HREEs at Mountain Pass. The analytical chemist added that during an investigation into
float tests of the Mountain Pass ore body, the Company failed to identify commercially significant
quantities of HREEs in the Mountain Pass ore.
95. Further, the former analytical chemist confirmed that lab findings of the lack of
HREEs were recorded in lab notebooks throughout the Class Period, and that data was entered into
Molycorp’s computerized information system, LIMS. LIMS was widely accessible to Company
personnel, including Molycorp’s management.
96. According to a leading industry expert with extensive and decades of experience in
the total rare earth supply chain, from the exploration to the manufacturing of end-use products
utilizing and enabled by the electronic properties of REEs, Molycorp will never produce
commercially significant volumes of HREE from the Mountain Pass ore body. The leading industry
- 38 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 44 of 137
expert in the rare earth field advises the investment community and performs due diligence services
for institutional investors with respect to technology metals supply and whether rare earth metal
ventures will likely be a commercial success. This industry expert has visited the Mountain Pass
mine prior to and during the Class Period. The industry expert has personal knowledge that
Molycorp, prior to and during the Class Period, engaged in desperate efforts to purchase third-party
companies with proven deposits of commercial volumes of HREEs because Molycorp’s Mountain
Pass mine ore body does not have commercially viable amounts of HREEs. The industry expert also
has personal knowledge that Molycorp has been unable to acquire those companies and/or deposits.
Due to confidentiality agreements the industry expert has entered into with the targets of interest, the
names of those targets are not identified in this pleading.
97. Shortly before 2009, the industry expert personally viewed a Molycorp internal report
drafted by a Company Vice President, which indicated that the Mountain Pass ore body did not have
commercially viable amounts of HREEs. The industry expert added that even if trace amounts of
HREEs exist at Mountain Pass, they are associated with the dangerously radioactive element thorium
and, therefore, Molycorp, prior to becoming a publicly-traded company, never attempted to recover
the radioactively contaminated HREEs from the Mountain Pass mine. The industry expert further
believes that Molycorp knew it could not and never intended to produce by mining Mountain Pass
ore material suitable for refining into separated, individual high-purity HREEs.
98. The industry expert also has personal knowledge regarding why Goldman Sachs,
shortly before Molycorp conducted its July 2010 IPO, sold its private investment in the Company.
The industry expert noted that Goldman Sachs, immediately before selling its shares, concluded that
Molycorp’s senior management, including defendant Smith, did not possess the skill set to convert
- 39 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 45 of 137
Mountain Pass into a viable and profitable mining operation and that the Company’s lack of
commercially significant HREEs, as well as Mountain Pass’ relatively low percentage of the key
LREE, neodymium, as compared to its global non-Chinese high volume rivals, such as Lynas
Corporation, placed the Company at a competitive disadvantage.
DEFENDANTS WERE MOTIVATED TO COMMIT FRAUD
Motivation to Commit Securities Fraud: Insider Trading
99. During the Class Period, Molycorp’s various insiders, including eight of the 1934 Act
Defendants, reported selling the following Molycorp common stock whether directly (“D”), or
indirectly, through the entities which they controlled (“I”):
Name Date Shares Price
Proceeds D/I
Entity
Smith 2/16/11
72,749
$50.00
$3,637,450
I
KMSMITH
3/16/11
11,596
$50.00
$579,800
I
KMSMITH
6/15/11
63,956
$51.00
$3,261,756
I
KMSMITH
110,959
$51.00
$5,658,909
D
259,260
$13,137,915
Ashburn
2/16/11
26,580
$50.00
$1,329,000
D
6/15/11
68,604
$51.00
$3,498,804
D
95,184
$4,827,804
Bhappu
2/16/11
6,976,383
$50.00
$348,819,150
I RCF
3/16/11
1,045,053
$50.00
$52,252,650
I RCF
6/15/11
5,747,833
$51.00
$293,139,483
I RCF
13,769,319
$694,211,283
Burba
2/16/11
33,225
$50.00
$1,661,250
D
6/15/11
85,757
$51.00
$4,373,607
D
118,982
$6,034,857
- 40 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 46 of 137
Name Date Shares Price
Cogut 2/16/11 6,113,616 $50
3/16/11 929,847 $50.00
6/15/11 5,226,610 $51.00 12,270,073
Kristoff 2/16/11 2/16/11 3/16/11 3/16/11 6/15/11 6/15/11
120,782 2,339,028
19,252 328,198 49,704
1,917,484 4,774,448
$50.00 $50.00 $50.00 $50.00 $51.00 $51.00
Proceeds D/I
$305,680,800
I
$46,492,350
I
$266,557,110
I $618,730,260
$6,039,100
D
$116,951,400
I
$962,600
D
$16,409,900
I
$2,534,904
D
$97,791,684
I $240,689,588
Entity
Pegasus Pegasus Pegasus
T-II Holdings
T-II Holdings
T-II Holdings
Henry 6/15/11
Thompson 2/16/11 6/15/11
TOTALS:
69,000 $51.00
35,883 $50.00
27,823 $51.00 63,706
31,419,972
$3,519,000 D
$1,794,150 D
$1,418,973 D $3,213,123
$1,584,366,380
100. The highly suspicious amount and timing of this insider trading supports a strong
inference that the Insider Selling Defendants timed the Company’s Secondary Offering and their
respective trading with knowledge of the alleged fraud, and sought to capture the stock’s inflated
value before the market could absorb the true information regarding the lack of commercial volumes
of HREEs at Mountain Pass. After the Insider Selling Defendants completed over $1.5 billion of
insider selling between February and June 2011, they have acquired insignificant amounts of
Molycorp stock in open-market transactions. Specifically, on December 15, 2011, defendant Smith
acquired 5,000 shares of common stock at $27.95 per share in an open market transaction, $5.50 per
share below the Company’s share price on November 11, 2011. On June 13, 2012, defendant Dolan
acquired 12,153 shares of common stock at $20.50 per share in an open market transaction, $12.95
- 41 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 47 of 137
below the Company’s share price on November 11, 2011. After November 11, 2011, moreover, the
other Insider Selling Defendants acquired restrictive stock units (“RSUs”) on zero cost basis, which
may only be sold at various dates in 2014.
101. The amounts of Molycorp stock that each of the Insider Selling Defendants sold as a
percentage of their total holdings during the Class Period further support a strong inference of
scienter. Specifically:
DEFENDANT PERCENTAGE OF HOLDINGS SOLD
Smith 21%
Ashburn 34%
Bhappu 49.8%
Burba 34.7%
Cogut 50.1%
Kristoff 52%
Henry 51.3%
Thompson 47.9%
Motivation: Acquisition of Silmet Grupp
102. The 1934 Act Defendants were motivated to inflate the Company’s stock price and
perpetrate their fraudulent scheme and course of conduct complained of herein to complete the
acquisition of Silmet Grupp during the Class Period. The 1934 Act Defendants relied on this
acquisition to fill in revenue for the sale of REEs and create the appearance that Molycorp would be
producing HREEs in commercial quantities. Unbeknownst to investors, the Mountain Pass mine did
not have the HREE capabilities itself. Maintaining Molycorp’s inflated stock price was critical to
- 42 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 48 of 137
the acquisition strategy on more favorable terms versus the number of shares Molycorp would have
had to issue had the 1934 Act Defendants been transparent with investors concerning the Company’s
operational status.
103. On April 1, 2011, the Company issued 1.6 million shares of its common stock to
acquire 80% of the issued and outstanding common stock of Silmet Grupp. As reported by
Molycorp on April 7, 2011, the total consideration for this acquisition was $80 million. Analysts
and investors lauded this acquisition as a key to the Company’s corporate strategy. As CIBC World
Markets reported on April 4, 2011:
A Great Strategic Fit
The new addition to Molycorp . . . will provide near-term cash flow, access to experienced workers in the rare earth separation and metal processing business as well as provide access to new customers and new products [and] provide[s] options for future development, such as a European base for the production of rare earth magnets.
The same day, during a conference call with analysts and investors, defendant Smith noted, “[w]e do
see extreme advantages in getting the Mountain Pass rare earth feedstock over to Silmet [and] we
will be shipping that [in] ocean containers.”
104. Between February 11, 2011 and April 1, 2011, as a result of defendants’ misleading
Class Period statements, the price of Molycorp’s common stock increased from $47.77 to $59.25 per
share. The higher Molycorp’s stock price, therefore, the more favorable the terms the Company
obtained for the Molycorp stock-based acquisition of Silmet Grupp.
- 43 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 49 of 137
Motivation: Molycorp’s Convertible Senior Note Offering
105. Defendants were also motivated to inflate and maintain Molycorp’s stock price in
order to complete a $230 million convertible senior note offering on June 16, 2011. As defendant
Smith noted during the Company’s August 11, 2011 earnings conference call:
Also in the second quarter, we completed a convertible debt offering that raised $223 million which, when combined with current cash flow from operations of $31.4 million year-to-date, provides full funding for our Project Phoenix capital plan and more. We feel confident that we still have significant potential to raise additional capital, which could be used for acquisitions and other activities that continue to advance our downstream integration strategy.
106. The offering, which benefited from Molycorp’s high stock price and favorable image
among investors, was necessary, as defendants acknowledged, to generate working capital and cover
capital expenditures for Project Phoenix and provide capital for potential future acquisitions.
Specifically, as noted above, Molycorp’s convertible note offering used to finance Project Phoenix
would not have been possible or would have come at a materially higher cost to defendants had they
disclosed the lack of commercial quantities of HREEs to investors.
MATERIALLY FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIOD
107. On February 11, 2011, Molycorp filed with the SEC a Form FWP (“Free Writing
Prospectus”) informing the public that the Company would be conducting an IPO of a total of 2.07
million shares of 5.50% Series A Mandatory Convertible Preferred Stock. Molycorp filed the
original registration statement for the Preferred Stock with the SEC on January 24, 2011.
Defendants Smith, Allen, Ashburn, Ball, Bhappu, Cogut, Dolan, Kirstoff, Machiels, Henry and
Thompson signed each of the registration statements associated with the February 11, 2011 Preferred
Stock IPO.
- 44 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 50 of 137
108. The Company’s offering documents for the February 11, 2011 Preferred Stock IPO
described Molycorp’s business – particularly the opportunities the Mountain Pass mine presented for
investors – in a highly positive manner:
If we are able to add an off-site facility to product rare earth metals and alloys instead of adding such facilities and equipment at Mountain Pass, we would transport cerium, lanthanum, neodymium, praseodymium, dyprosium, terbium, and samarium oxide products from our Mountain Pass facility to that off-site location to produced rare earth metals and alloys . In December 2010, we entered into a non-binding letter of intent with Hitachi Metals, Ltd., of Hitachi, a leading manufacturer of NdFeB alloys and magnets, to form joint ventures for the production of rare earth alloys and magnets in the United States. . . .
Alloy and Magnet Production Joint Ventures
NdFeB magnets, which are critical components in “green” technologies and the miniaturization of electronics, are primarily manufactured in China (approximately 80%) and Japan (approximately 20%). . . . The consummation of such joint ventures, in conjunction with our current modernization plans . . . is expected to provide us with the capability to mine, process, separate and alloy individualized REEs and manufacture them into NdFeB magnets. This downstream integration, which we refer to as our “mine-to-magnets” strategy, would make us the only fully integrated producer of NdFeB magnets outside of China, helping to secure a rare earth supply chain for the Rest of the World.
*
The oxides produced from processing REE’s are collectively referred to as REOs. Light and heavy REE are contained in all rare earth deposits, including in our deposit at Mountain Pass . Heavy REEs generally command higher sales prices on a per pound basis than light REEs because heavy REEs are not as prevalent.
109. The offering documents for the Preferred Stock IPO also made clear why defendants’
statements concerning HREEs were highly material to investors:
REEs have unique properties that make them critical materials to many existing applications upon which society has become dependent as well as many emerging applications. Examples include:
Clean-Energy Technologies: hybrid and electric vehicles, wind power turbines and compact fluorescent lighting;
- 45 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 51 of 137
High-Technology Applications: miniaturization of cell phones, personal digital assistant devices, digital music players, hard disk drives used in computers, computing devices, “ear bud” speakers and microphones, as well as fiber optics, lasers and optical temperature sensors;
Critical Defense Applications: guidance and control systems, communications, global positioning systems, radar and sonar; and
Advanced Water Treatment: industrial, military, homeland security and domestic and foreign aid applications.
Global consumption of REEs is projected to steadily increase due to continuing growth in existing applications and increased innovation and development of new end uses. . . . In addition, according to IMCOA, global demand for rare earths used in magnets is expected to grow at a CAGR of approximately 13% [between 2010 and 2015].
110. The Company’s February 11, 2011 Preferred Stock IPO further touted as one of “Our
Strengths” that:
IMCOA estimates there is a [sic] currently a global deficit in REO supply, which anticipated [sic] to continue without the advent of production from new projects, such as Mountain Pass. Limits on rare earth exports from China and the lack of available substitutes make the development of new sources of REEs essential to meet the growing demand for existing and emerging technologies , such as hybrid and electric vehicles, wind power turbines, compact fluorescent light bulbs, hard disk drives and dual use electronics.
111. On February 14, 2011, Molycorp filed with the SEC pursuant to Rule 424(b)(4) a
prospectus associated with the Preferred Stock IPO that contained false and misleading statements
identical to those distributed to the market in the Company’s February 11, 2011 FWP.
112. The February 11 and February 14, 2011 statements, contained in the Preferred Stock
IPO offering documents, concerning dysprosium and terbium at Mountain Pass, the transport of
dysprosium and terbium mined from the Mountain Pass facility and the lack of available substitutes
for REEs, were materially misleading when made for the following reasons:
- 46 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 52 of 137
(a) Shortly before Molycorp conducted its July 2010 IPO, Goldman Sachs sold its
private investment in the Company because Goldman Sachs had concluded that Mountain Pass’ lack
of commercial amounts of HREEs and the mine’s relatively low percentage of the key LREE,
neodymium, as compared to the Company’s non-Chinese high volume rivals, such as Lynas
Corporation, placed Molycorp at a competitive disadvantage (¶98);
(b) Prior to and throughout the Class Period, daily analysis of 20 to 30 samples of
critical solvent extraction circuits of Mountain Pass ore stock piles were performed. Each one of
these analyses confirmed there was no dysprosium or terbium in the Mountain Pass ore and the
elements could not be produced from the Mountain Pass ore body in commercially significant
quantities (¶94);
(c) During the Class Period, investigations of float tests of the Mountain Pass ore
body revealed that commercially viable volumes of HREEs did not exist in the Mountain Pass ore
and the results of these tests were maintained in the Company’s computerized LIMS, which was
widely accessible to the Company personnel, including Company management (¶94);
(d) During the Class Period, Molycorp made several efforts to purchase
companies with proven deposits of commercial volumes and recoverable levels of HREEs to
perpetuate the illusion that the Mountain Pass mine contained significant volumes of HREEs, which
it did not (¶96);
(e) The trace amounts of HREEs that do exist at Mountain Pass are associated
with the dangerously radioactive element thorium and, therefore, Molycorp, prior to becoming a
publicly-traded company, never attempted to extract traces of contaminated HREEs. Further,
- 47 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 53 of 137
Molycorp does not currently have sufficient separation technology in place to extract HREEs even if
they existed at Mountain Pass (¶97);
(f) Additional analysis of the Mountain Pass ore body, which became publicly
available after the Class Period, revealed a weight to volume of 0.0% for key HREEs such as
dysprosium and terbium;
(g) An internal written report in existence as of June 2009, written by a Vice
President of Molycorp, indicated that the Mountain Pass ore body did not have commercially viable
amounts of HREEs (¶97); and
(h) Molycorp failed to disclose to investors that because there were no
commercially viable amounts of HREEs at the Mountain Pass mine, the Company could not produce
commercially viable amounts of highly-valued HREEs during Phase I or Phase II of Project Phoenix
(¶¶94, 97, 149).
113. As a result of the defendants’ February 11, 2011 misleading statements, the prices of
Molycorp securities traded at artificially inflated levels.
114. On February 16, 2011, defendants Ashburn, Bhappu, Burba, Cogut, Kristoff, Smith
and Thompson sold over 16.7 million shares of their Molycorp common stock for proceeds of
$785,912,300 . Ashburn, Bhappu, Burba, Cogut, Kristoff, Smith and Thompson failed in their duty,
pursuant to Company policy and the federal securities laws, either to disclose the material adverse
facts stated in ¶¶107-111 before selling their stock, or to abstain from trading.
115. On March 9, 2011, Molycorp filed its 2010 Form 10-K with the SEC. Defendants
Smith, Allen, Bhappu, Dolan, Henry, Kristoff and Thompson signed the 2010 Form 10-K. The 2010
Form 10-K stated:
- 48 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 54 of 137
Demand for Rare Earth Products
The lack of available substitutes makes REEs essential for existing and emerging technologies. According to IMCOA, global demand in 2010 is estimated to be approximately 125,000 mt of REO, roughly equivalent to the 2008 demand level.
* * *
We expect to sell and transport a portion of the REOs we produce to customers for use in their particular applications. The remainder of the REOs will be processed into rare earth metals. A portion of these metals will be sold to end users and we expect to process the rest into rare earth alloys. These rare earth alloys can be used in a variety of applications, including but not limited to: electrodes for NiMH battery production; samarium cobalt magnet production; and NdFeB magnet production. A portion of these rare earth alloys will be manufactured into NdFeB magnets as part of our alloy and magnet production joint ventures, described below, and we expect to sell the rest to end users .
We currently produce rare earth metals outside of the United States through a third-party tolling arrangement. Our modernization and expansion plans envision adding facilities and equipment for metal conversion and alloy production at the Mountain Pass facility or an off-site property. If we are able to add an off-site facility to produce rare earth metals and alloys instead of adding such facilities and equipment at Mountain Pass, we would transport cerium, lanthanum, neodymium, praseodymium, dysprosium, terbium and samarium oxide products from our Mountain Pass facility to that off-side location to produce rare earth metals and alloys . In December 2010, we entered into a non-binding letter of intent with Hitachi Metals, Ltd., or Hitachi, a leading manufacturer of NdFeB alloys and magnets, to form joint ventures for the production of rare earth alloys and magnets in the United States and to acquire a license for certain technology related to the production of rare earth metals, alloys and magnets. Additionally, we have entered into a non-binding letter of intent with Neo Material Technologies, Inc., or Neo Material, that, among other things, contemplates a technology transfer agreement pursuant to which Neo Material may provide us with technical assistance and know-how with respect to the production of rare earth metals, alloys and magnets.
116. On March 9, 2011, Smith and Allen submitted certifications to the SEC, pursuant to
§§302 and 906 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), along with the Company’s
2010 Form 10-K. Smith and Allen certified, inter alia :
- 49 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 55 of 137
(a) “[T]his report does not contain any untrue statement of material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this
report ”; and
(b) “[I have] [d]esigned . . . disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under [my] supervision, to ensure that material
information relating to [Molycorp] is made known to us by others within [Molycorp], particularly
during the period in which this report is being prepared .”
117. On March 9, 2011, the Company conducted its 4Q10 earnings conference call for
analysts and investors. Defendants Smith and Allen participated in the call. During the call,
defendant Smith made the following statements:
[Luisa Moreno – Analyst:] All right. So in the Phase 2, what other elements we should expect – we would likely see? Can you comment on that?
[Mark Smith – Molycorp CEO:] Yes. We’ll be producing 10 different rare earth elements as part of Phase 1 and as part of Phase 2 [of “Project Phoenix”], and that will be Cerium, Lanthanum, Neodymium, Praseodymium, Samarium, Gadolinium, Europium, Dysprosium, Terbium, and Yttrium .
[Luisa Moreno:] And those are all coming from Mountain Pass, or are you getting concentrates from someone else?
[Mark Smith:] No. That’s all from the Mountain Pass rare earth ore body . And that’s – just remember that everywhere the ore body has all of the rare earth elements in it .
* * *
[Luisa Moreno:] Yes. Most of the cost will come from the separation part of separating these elements, and my understanding is the heaviest are harder to – require more processing. So that’s why I was asking.
[Mark Smith:] . . . So what that basically means is we look at these other rare earth elements that we’ll be producing in commercial quantities as byproduct
- 50 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 56 of 137
materials for the Company where we can really adjust our production costs on those elements, because we can move a lot of the fixed costs over to the higher-volume elements. So we will end up with a very robust economic program by producing these materials and selling them on the open market .
*
[Robert Crothers – Analyst:] Yes, I have some questions. First one is, I know you probably can’t elaborate too much on any acquisitions, but being that you guys are considered to have light rare earth resources, would it be more – would we say it might be more of a possibility that you would look at a company with heavy rare earth deposits as opposed to one with more light rare earth deposits?”
[Mark Smith:] Robert, I think that what you’re really experiencing when you think about rare earths that way is a lot of promotional activities by a lot of junior exploration companies. When you sit down and take a look at the rare earth deposits around the world, you have a bunch of different types of rare earth ore that could be out there, but the two primary types are bastnacite and monazite. And there is a difference in monazite versus bastnacite in terms of the heavy rare earth concentration in it. But what’s very, very interesting is that when you look at any of these rare earth deposits that are being promoted around the world, what you find out is that Cerium is always the number-one element in the ore mix, Lanthanum is number two. Neodymium is number three, Praseodymium is number four, and then everything else drops off substantially.
. . . And if you think about that calculation, what it does is it really makes it sound as if – the deposit like that Mountain Pass deposits is disadvantaged on that heavy rare earth side, and, in fact, what it’s really saying is, is that we have a very high ore grade . . . .
118. Defendants’ March 9, 2011 statements concerning the transport of dysprosium and
terbium from the Mountain Pass mine, that the Company would be producing those HREEs in
commercial quantities during Phase I and Phase II of Project Phoenix, that the HREE Mountain Pass
deposits were not “disadvantaged,” as well as their Sarbanes-Oxley certifications, were materially
misleading when made for the following reasons:
(a) Shortly before Molycorp conducted its July 2010 IPO, Goldman Sachs sold its
private investment in the Company because Goldman Sachs had concluded that Mountain Pass’ lack
of commercial amounts of HREEs and the mine’s relatively low percentage of the key LREE,
- 51 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 57 of 137
neodymium, as compared to the Company’s non-Chinese high volume rivals, such as Lynas
Corporation, placed Molycorp at a competitive disadvantage (¶98);
(b) Prior to and throughout the Class Period, daily analysis of 20 to 30 samples of
critical solvent extraction circuits of Mountain Pass ore body were performed. Each one of these
analyses confirmed there was no dysprosium or terbium in the Mountain Pass ore body and the
elements could not be produced from the Mountain Pass ore body in commercially significant
quantities (¶94);
(c) During the Class Period, investigations of float tests of the Mountain Pass ore
body revealed that commercially viable volumes of HREEs did not exist in the Mountain pass ore
and the results of these tests were maintained in the Company’s computerized LIMS, which was
widely accessible to the Company personnel, including Company management (¶94);
(d) During the Class Period, Molycorp made several efforts to purchase
companies with proven deposits of commercial volumes and recoverable levels of HREEs to
perpetuate the illusion that the Mountain Pass mine contained significant volumes of HREEs, which
it did not (¶96).
(e) The trace amounts of HREEs that do exist at Mountain Pass are associated
with the dangerously radioactive element thorium and, therefore, Molycorp, prior to becoming a
publicly-traded company, never attempted to extract traces of contaminated HREEs. Further,
Molycorp does not currently have sufficient separation technology in place to extract HREEs even if
they existed at Mountain Pass (¶97);
- 52 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 58 of 137
(f) Additional analysis of the Mountain Pass ore body, which became publicly
available after the Class Period, revealed a weight to volume of 0.0% for key HREEs such as
dysprosium and terbium;
(g) An internal written report in existence as of June 2009, written by a Vice
President of Molycorp, indicated that the Mountain Pass ore body did not have commercially viable
amounts of HREEs (¶97); and
(h) Molycorp failed to disclose to investors that because there were no
commercially viable amounts of HREEs at the Mountain Pass mine, the Company could not produce
commercially viable amounts of highly-valued HREEs during Phase I or Phase II of Project Phoenix
(¶¶94, 97, 149).
119. As a result of defendants’ March 9, 2011 misleading statements, the price of
Molycorp’s common stock increased from a low of $47.81 per share to close at $49.04 per share on
March 10, 2011. The price of the Company’s preferred stock also increased on March 10, 2011.
120. On March 16, 2011, defendants Bhappu, Cogut, Kristoff and Smith sold over 4.6
million additional shares of their Molycorp common stock for proceeds of $233,648,700. Bhappu,
Cogut, Kristoff and Smith failed in their duty, pursuant to Company policy and the federal securities
laws, either to disclose the material adverse facts stated in ¶¶115-117 before selling their stock, or to
abstain from trading.
121. On May 10, 2011, Molycorp filed its 1Q11 Form 10-Q with the SEC. Defendants
Smith and Allen signed the Form 10-Q. The Form 10-Q stated:
Our Mine Process and Development Plans
We recommenced mining operations in December 2010 and are preparing to recommence milling operations, which we expect to occur in the first quarter of
- 53 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 59 of 137
2012. Recommencement of mining and milling operations is coincident with our initial modernization and expansion plan, which will give us the capacity to efficiently produce at a rate of approximately 19,050 mt of REO per year by the end of 2012. Additionally, upon the completion of our capacity expansion plan, we expect to have the ability to produce up to approximately 40,000 mt of REO per year by the end of 2013. Prior to the expected completion of our initial modernization and expansion efforts, we expect to produce approximately 3,000 mt year in the aggregate of cerium products, lanthanum concentrate, didymium oxide and heavy rare earth concentrates from stockpiled feedstock .
We currently produce rare earth metals outside of the United States through a third-party tolling arrangement. Additionally, through our acquisitions of Molycorp Silmet AS and MMA in April 2011, we added facilities and equipment for metal conversion and alloy production within the Molycorp organization. We intend to transport cerium, lanthanum, neodymium, praseodymium, dysprosium, terbium and samarium oxide products from our Mountain Pass facility to Molycorp Silmet AS and MMA to produce rare earth metals and alloys .
*
China has announced a national stockpile program, as has South Korea. Additionally, Japan has increased its national stockpile program. In December 2010, the U.S. Department of Energy released a study concluding that five rare earth metals, including dysprosium, neodymium, terbium, europium and yttrium, are critical to clean energy technologies in the short term due to their importance to the clean energy economy and risk of supply disruption. The report emphasizes that diversified global supply chains for these critical materials are essential, and calls for steps to be taken to facilitate extraction, processing and manufacturing in the United States. Additionally, the U.S. Department of Defense is conducting a study to determine its rare earth requirements and supply chain vulnerabilities and whether to build a strategic stockpile. These stockpile programs will likely accelerate the pace of the current and projected global REE supply deficit.
122. On May 10, 2011, Smith and Allen submitted certifications to the SEC, pursuant to
§§302 and 906 of Sarbanes-Oxley, along with the Company’s 1Q11 Form 10-Q. Smith and Allen
certified, inter alia :
(a) “[T]his report does not contain any untrue statement of material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
- 54 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 60 of 137
which such statements were made, no misleading with respect to the period covered by this
report ”; and
(b) “[I have] [d]esigned . . . disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under [my] supervision, to ensure that material
information relating to [Molycorp] is made known to us by others within [Molycorp], particularly
during the period in which this report is being prepared .”
123. Defendants Smith and Allen’s May 10, 2011 statement concerning the transport of
dysprosium and terbium from the Mountain Pass mine, as well as their Sarbanes-Oxley
certifications, were materially misleading when made for the following reasons:
(a) Shortly before Molycorp conducted its July 2010 IPO, Goldman Sachs sold its
private investment in the Company because Goldman Sachs had concluded that Mountain Pass’ lack
of commercial amounts of HREEs and the mine’s relatively low percentage of the key LREE,
neodymium, as compared to the Company’s non-Chinese high volume rivals, such as Lynas
Corporation, placed Molycorp at a competitive disadvantage (¶98);
(b) Prior to and throughout the Class Period, daily analysis of 20 to 30 samples of
critical solvent extraction circuits of Mountain Pass ore body were performed. Each one of these
analyses confirmed there was no dysprosium or terbium in the Mountain Pass ore body and the
elements could not be produced from the Mountain Pass ore body in commercially significant
quantities (¶94);
(c) During the Class Period, investigations of float tests of the Mountain Pass ore
body revealed that commercially viable volumes of HREEs did not exist in the Mountain pass ore
- 55 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 61 of 137
and the results of these tests were maintained in the Company’s computerized LIMS, which was
widely accessible to the Company personnel, including Company management (¶94);
(d) During the Class Period, Molycorp made several efforts to purchase
companies with proven deposits of commercial volumes and recoverable levels of HREEs to
perpetuate the illusion that the Mountain Pass mine contained significant volumes of HREEs, which
it did not (¶96).
(e) The trace amounts of HREEs that do exist at Mountain Pass are associated
with the dangerously radioactive element thorium and, therefore, Molycorp, prior to becoming a
publicly-traded company, never attempted to extract traces of contaminated HREEs. Further,
Molycorp does not currently have sufficient separation technology in place to extract HREEs even if
they existed at Mountain Pass (¶97);
(f) Additional analysis of the Mountain Pass ore body, which became publicly
available after the Class Period, revealed a weight to volume of 0.0% for key HREEs such as
dysprosium and terbium;
(g) An internal written report in existence as of June 2009, written by a Vice
President of Molycorp, indicated that the Mountain Pass ore body did not have commercially viable
amounts of HREEs (¶97); and
(h) Molycorp failed to disclose to investors that because there were no
commercially viable amounts of HREEs at the Mountain Pass mine, the Company could not produce
commercially viable amounts of highly-valued HREEs during Phase I or Phase II of Project Phoenix
(¶¶94, 97, 149).
- 56 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 62 of 137
124. As a result of Smith and Allen’s May 10, 2011 misleading statements, the price of
Molycorp’s securities continued to trade at artificially inflated levels.
125. On June 7, 2011, Molycorp filed with the SEC a Form S-1/A registration statement
for the Secondary Offering of 13.7 million shares of common stock. This Secondary Offering was
effected for the purpose of allowing the Insider Selling Defendants to sell the common stock to
unwitting investors . Defendants Smith, Allen, Ashburn, Ball, Bhappu, Cogut, Dolan, Kristoff,
Machiels, Henry and Thompson signed the registration statement.
126. On June 9, 2011, the prospectus associated with the offering became effective and,
including the exercise of over-allotment, enabled eight of the 1934 Act Defendants to sell 13.3
million shares of their Molycorp common stock to the public at $51.00 per share .
127. The offering documents for the June 10, 2011 Secondary Offering described
Molycorp’s business – particularly the opportunities the Mountain Pass mine presented for investors
– in a highly positive manner, stating in pertinent part:
The REE group includes 17 elements, namely the 15 lanthanide elements, which are cerium, lanthanum, neodymium, praseodymium, promethium (which does not occur naturally), samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium and lutetium, and two elements that have similar chemical properties to the lanthanide elements — yttrium and scandium. The oxides produced from processing REEs are collectively referred to as REOs. Light and heavy REEs are contained in all rare earth deposits, including in our deposit at Mountain Pass. Heavy REEs generally command higher sales prices on a per pound basis than light REEs because heavy REEs are not as prevalent . Cerium, lanthanum, neodymium, praseodymium and samarium are considered “light REEs” that are more predominant in bastnacite, while europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium and lutetium are considered “heavy REEs” that are more predominant in monazite.
- 57 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 63 of 137
128. The offering documents for the June 10, 2011 Secondary Offering positively
highlighted demand for REEs located at the Company’s Mountain Pass mine, the lack of available
substitutes for such elements, while emphasizing limited global supply:
REEs have unique properties that make them critical materials to many existing applications upon which society has become dependent as well as many emerging applications. Examples include:
• Clean-Energy Technologies: hybrid and electric vehicles, wind power turbines and compact fluorescent lighting;
• High-Technology Applications: miniaturization of cell phones, personal digital assistant devices, digital music players, hard disk drives used in computers, computing devices, “ear bud” speakers and microphones, as well as fiber optics, lasers and optical temperature sensors;
• Critical Defense Applications: guidance and control systems, communications, global positioning systems, radar and sonar; and
• Advances Water Treatment: industrial, military and homeland security and domestic and foreign aid applications.
Global consumption of REEs is projected to steadily increase due to continued growth in existing applications and increased innovation and development of new end uses. . . . In addition, according to IMCOA, global demand for rare earths used in magnets [i.e., HREEs] is expected to grow at a CAGR of approximately 10-15% [between 2010 and 2015] . . . .
China has dominated the global supply of [rare earth oxides or “REOs”] for the last ten years and, according to IMCOA, accounted for approximately 97% of global REO production in 2008. Even with our planned production, global supply is expected by analysts to remain tight due to the combined effects of growing demand and actions taken by the Chinese government to restrict exports. . . . China’s internal consumption of rare earths is expected to continue to grow, leaving the Rest of World with less supply during a period of projected increasing global demand.
*
IMCOA estimates there is a [sic] currently a global deficit in REO supply, which anticipated [sic] to continue without the advent of production from new projects, such as Mountain Pass. Limits on rare earth exports from China and the lack of available substitutes make the development of new sources of REEs essential to meet the growing demand for existing and emerging technologies . . . .
- 58 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 64 of 137
129. The offering documents for the June 10, 2011 Secondary Offering also stated: “ We
intend to transport . . . dysprosium [and] terbium . . . from our Mountain Pass facility to our
Molycorp Silmet AS and MMA facilities where we will produce rare earth metals and alloys .”
130. The June 9, 2011 statements concerning HREEs at Mountain Pass, the transport or
dysprosium and terbium from the Mountain Pass mine and the lack of available substitutes for REEs,
were misleading when made for the following reasons:
(a) Shortly before Molycorp conducted its July 2010 IPO, Goldman Sachs sold its
private investment in the Company because Goldman Sachs had concluded that Mountain Pass’ lack
of commercial amounts of HREEs and the mine’s relatively low percentage of the key LREE,
neodymium, as compared to the Company’s non-Chinese high volume rivals, such as Lynas
Corporation, placed Molycorp at a competitive disadvantage (¶98);
(b) Prior to and throughout the Class Period, daily analysis of 20 to 30 samples of
critical solvent extraction circuits of Mountain Pass ore were performed. Each one of these analyses
confirmed there was no dysprosium or terbium in the Mountain Pass ore body and the elements
could not be produced from the Mountain pass ore body in commercially significant quantities (¶94);
(c) During the Class Period, investigations of float tests of the Mountain Pass ore
body revealed that commercially viable volumes of HREEs did not exist in the Mountain Pass ore
and the results of these tests were maintained in the Company’s computerized LIMS, which was
widely accessible to the Company personnel, including Company management (¶94);
(d) During the Class Period, Molycorp made several efforts to purchase
companies with proven deposits of commercial volumes and recoverable levels of HREEs to
- 59 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 65 of 137
perpetuate the illusion that the Mountain Pass mine contained significant volumes of HREEs, which
it did not (¶96);
(e) The trace amounts of HREEs that do exist at Mountain Pass are associated
with the dangerously radioactive element thorium and, therefore, Molycorp, prior to becoming a
publicly-traded company, never attempted to extract traces of contaminated HREEs. Further,
Molycorp does not currently have sufficient separation technology in place to extract HREEs even if
they existed at Mountain Pass (¶97);
(f) Additional analysis of the Mountain Pass ore body, which became publicly
available after the Class Period, revealed a weight to volume of 0.0% for key HREEs such as
dysprosium, terbium, europium and yttrium;
(g) An internal written report in existence as of June 2009, written by a Vice
President of Molycorp, indicated that the Mountain Pass ore body did not have commercially viable
amounts of HREEs (¶97); and
(h) Molycorp failed to disclose to investors that because there were no
commercially viable amounts of HREEs at the Mountain Pass mine, the Company could not produce
commercially viable amounts of highly-valued HREEs during Phase I or Phase II of Project Phoenix
(¶¶94, 97, 149).
131. As a result of the defendants’ June 10, 2011 misleading statements, the price of
Molycorp’s securities continued to trade at artificially inflated levels.
132. On June 15, 2011, defendants Ashburn, Bhappu, Burba, Cogut, Henry, Kristoff,
Thomson and Smith sold over 13.3 million shares of their Molycorp common stock pursuant to the
Secondary Offering for proceeds of $681,756,780 . Ashburn, Bhappu, Burba, Cogut, Henry,
- 60 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 66 of 137
Kristoff, Thomson and Smith failed in their duty, pursuant to Company policy and the federal
securities laws, either to disclose the material adverse facts stated in ¶¶115-117, 122, 127-129 before
selling their stock, or to abstain from trading.
133. On August 11, 2011, Molycorp filed its 2Q11 Form 10-Q with the SEC. Defendants
Smith and Allen signed the Form 10-Q. The Form 10-Q stated:
Our Mine Process and Development Plans
We recommenced mining operations in December 2010 and are preparing to recommence milling operations, which we expect to occur in the first quarter of 2012. Recommencement of mining and milling operations is coincident with our initial modernization and expansion plan, which will give us the capacity to efficiently produce at a rate of approximately 19,050 mt of REO per year by the end of 2012. Additionally, upon the completion of our capacity expansion plan at Mountain Pass, we expect to have the ability to produce up to approximately 40,000 mt of REO per year by the end of 2013. Prior to the expected completion of our initial modernization and expansion efforts at Mountain Pass, we expect to produce approximately 3,000 mt to 5,000 mt per year in the aggregate of cerium products, lanthanum concentrate, didymium oxide and heavy rare earth concentrates from stockpiled feedstock .
We currently produce rare earth metals outside of the United States through a third-party tolling agreement. As a result of our acquisitions of MMA and of a controlling interest in Molycorp Silmet, we added facilities and equipment for metal conversion and alloy production within the Molycorp organization. We intend to transport cerium, lanthanum, neodymium, praseodymium, dysprosium, terbium and samarium oxide products from our Mountain Pass facility to Molycorp Silmet and MMA to produce rare earth metals and alloys .
134. On August 11, 2011, Smith and Allen submitted certifications to the SEC, pursuant to
§§302 and 906 of Sarbanes-Oxley, along with the Company’s 2Q11 Form 10-Q. Smith and Allen
certified, inter alia:
(a) “[T]his report does not contain any untrue statement of material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
- 61 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 67 of 137
which such statements were made, no misleading with respect to the period covered by this
report ”; and
(b) “[I have] [d]esigned . . . disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under [my] supervision, to ensure that material
information relating to [Molycorp] is made known to us by others within [Molycorp], particularly
during the period in which this report is being prepared .”
135. Defendants Smith and Allen’s August 11, 2011 statements concerning the transport of
terbium and dysprosium from the Mountain Pass mine, the lack of available substitutes for REEs, as
well as their Sarbanes-Oxley certifications, were materially misleading when made for the following
reasons:
(a) Shortly before Molycorp conducted its July 2010 IPO, Goldman Sachs sold its
private investment in the Company because Goldman Sachs had concluded that Mountain Pass’ lack
of commercial amounts of HREEs and the mine’s relatively low percentage of the key LREE,
neodymium, as compared to the Company’s non-Chinese high volume rivals, such as Lynas
Corporation, placed Molycorp at a competitive disadvantage (¶98);
(b) Prior to and throughout the Class Period, daily analysis of 20 to 30 samples of
critical solvent extraction circuits of Mountain Pass ore body were performed. Each one of these
analyses confirmed there was no dysprosium or terbium in the Mountain Pass ore body and the
elements could not be produced from the Mountain Pass ore body in commercially significant
quantities (¶94);
(c) During the Class Period, investigations of float tests of the Mountain Pass ore
body revealed that commercially viable volumes of HREEs did not exist in the Mountain pass ore
- 62 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 68 of 137
and the results of these tests were maintained in the Company’s computerized LIMS, which was
widely accessible to the Company personnel, including Company management (¶94);
(d) During the Class Period, Molycorp made several efforts to purchase
companies with proven deposits of commercial volumes and recoverable levels of HREEs to
perpetuate the illusion that the Mountain Pass mine contained significant volumes of HREEs, which
it did not (¶96);
(e) The trace amounts of HREEs that do exist at Mountain Pass are associated
with the dangerously radioactive element thorium and, therefore, Molycorp, prior to becoming a
publicly-traded company, never attempted to extract traces of contaminated HREEs. Further,
Molycorp does not currently have sufficient separation technology in place to extract HREEs even if
they existed at Mountain Pass (¶97);
(f) Additional analysis of the Mountain Pass ore body, which became publicly
available after the Class Period, revealed a weight to volume of 0.0% for key HREEs such as
dysprosium and terbium;
(g) An internal written report in existence as of June 2009, written by a Vice
President of Molycorp, indicated that the Mountain Pass ore body did not have commercially viable
amounts of HREEs (¶97); and
(h) Molycorp failed to disclose to investors that because there were no
commercially viable amounts of HREEs at the Mountain Pass mine, the Company could not produce
commercially viable amounts of highly-valued HREEs during Phase I or Phase II of Project Phoenix
(¶¶94, 97, 149).
- 63 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 69 of 137
136. On August 12, 2011, Molycorp issued a press release stating that the Company had
suspended discussions with Hitachi Metals to create a joint venture to manufacture permanent
magnets that would utilize HREEs for their manufacture. In the press release, defendant Smith
stated: “[t]he companies were unable to reach agreement on certain key matters affecting the
value of the joint venture to each party .”
137. Defendant Smith’s August 12, 2011 statement was intended to perpetuate the
falsehood that Mountain Pass had commercial quantities of HREEs because, as defendants failed to
disclose to the market, Hitachi Metals terminated the joint-venture discussions because Mountain
Pass did not have sufficient amounts of critical HREEs to meet Japanese industrial requirements,
particularly with respect to the manufacture of NdFeb magnets.
138. On August 11, 2011, the Company conducted its 2Q11 earnings conference call for
analysts and investors. Defendants Smith and Allen participated in the call. During the call,
defendant Smith stated:
[Michael Scarcello – Analyst:] Hello, Mr. Smith. My question is regarding Molycorp’s long-term plans regarding heavy rare earths. I know that you have an impressive portfolio of light, neodymium and other critical materials, but what my concern is, as a shareholder, is a perceived lack of the heavies, particularly dysprosium, terbium, europium. My question is, what are your long-term plans to secure a supply of those materials in particular?
[Mark Smith:] First of all, let me reiterate from prior calls that Molycorp will be producing 10 rare earth elements once Project Phoenix Phase 1 is up and operating, and we will be producing heavy rare earth metals as part of that production . We will also be obtaining some heavy rare earth production as a result of our ownership of the Molycorp Silment operation. They’ll be pulling those materials out, and we’ll be processing those into final sellable products.
Molycorp has about 4 different tactics that is uses to handle what we call the dysprosium issue. The dysprosium issue, which is linked to terbium as well, is really related to the rare earth magnet business, because without dysprosium, of course, these [NdFeb] magnets will not be able to operate at the higher
- 64 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 70 of 137
temperature capacities without that dysprosium. So, in order to address that, our approach is, we will be producing materials from both Mountain Pass and Molycorp [Silmet] .
139. Defendant Smith’s August 11, 2011 statement concerning the production of terbium
and dysprosium from the Mountain Pass mine was misleading when made for the following reasons:
(a) Shortly before Molycorp conducted its July 2010 IPO, Goldman Sachs sold its
private investment in the Company because Goldman Sachs had concluded that Mountain Pass’ lack
of commercial amounts of HREEs and the mine’s relatively low percentage of the key LREE,
neodymium, as compared to the Company’s non-Chinese high volume rivals, such as Lynas
Corporation, placed Molycorp at a competitive disadvantage (¶98);
(b) Prior to and throughout the Class Period, daily analysis of 20 to 30 samples of
critical solvent extraction circuits of Mountain Pass ore body were performed. Each one of these
analyses confirmed there was no dysprosium or terbium in the Mountain Pass ore body and the
elements could not be produced from the Mountain Pass ore body in commercially significant
quantities (¶94);
(c) During the Class Period, investigations of float tests of the Mountain Pass ore
body revealed that commercially viable volumes of HREEs did not exist in the Mountain pass ore
and the results of these tests were maintained in the Company’s computerized LIMS, which was
widely accessible to the Company personnel, including Company management (¶94);
(d) During the Class Period, Molycorp made several efforts to purchase
companies with proven deposits of commercial volumes and recoverable levels of HREEs to
perpetuate the illusion that the Mountain Pass mine contained significant volumes of HREEs, which
it did not (¶96);
- 65 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 71 of 137
(e) The trace amounts of HREEs that do exist at Mountain Pass are associated
with the dangerously radioactive element thorium and, therefore, Molycorp, prior to becoming a
publicly-traded company, never attempted to extract traces of contaminated HREEs. Further,
Molycorp does not currently have sufficient separation technology in place to extract HREEs even if
they existed at Mountain Pass (¶97);
(f) Additional analysis of the Mountain Pass ore body, which became publicly
available after the Class Period, revealed a weight to volume of 0.0% for key HREEs such as
dysprosium and terbium;
(g) An internal written report in existence as of June 2009, written by a Vice
President of Molycorp, indicated that the Mountain Pass ore body did not have commercially viable
amounts of HREEs (¶97); and
(h) Molycorp failed to disclose to investors that because there were no
commercially viable amounts of HREEs at the Mountain Pass mine, the Company could not produce
commercially viable amounts of highly-valued HREEs during Phase I or Phase II of Project Phoenix
(¶¶94, 97, 149).
140. As a result of defendants Smith and Allen’s August 11, 2011 misleading statements,
the price of Molycorp’s common stock increased from a close of $54.14 to a close of $58.90 on
August 12, 2011. The price of the Company’s preferred stock also increased on August 12, 2011.
141. On September 18, 2011, a leading expert on global demand and supply of REEs
appeared at an industry convention in Beijing, China. During the convention, the expert materially
lowered projected global REE demand because, in part, skyrocketing prices for LREEs particularly
- 66 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 72 of 137
lanthanum, were forcing consumers to switch to viable substitutes. At that convention, the expert
also emphasized that supply shortages for HREEs would persist for decades.
142. On September 20, 2011, a J.P. Morgan securities analyst cut the target price of
Molycorp by half, relying on the expert’s downward revision in LREE demand made in Beijing,
China on September 18, 2011. In response to J.P. Morgan’s cut in the target price of Molycorp, the
value of the Company’s stock price plummeted from a September 19, 2011 closing price of $53.01
to a low of $41.33, representing a 22% drop in value, on heavy trading volume.
143. On September 21, 2011, defendant Smith testified before the Subcommittee on Asia
and the Pacific of the Committee on Foreign Affairs, House of Representatives. The hearing was
entitled “China’s Monopoly on Rare Earths: Implications for U.S. Foreign and Security Policy.”
During the hearing Smith conceded that recycling of HREEs, specifically terbium, was not currently
a viable approach to address supply shortages of HREEs:
[REPRESENTATIVE JOHNSON:] Mr. Smith, one of the recommendations you offer is to support private sector efforts to recycle rare earths. How effective would such a process be?
[SMITH:] Right now . . . it is not very effective . The numbers that we are hearing are that we have less that 5 percent of the used compact fluorescent light bulbs being recycled today, which means that 95 percent of them are being thrown away into landfills . . . .
So it is our opinion that we can have a major impact on certain heavy rare earth elements, such as yttrium, europium, and terbium if we get the idea of recycling across to the American public in a much bigger way than what it is today.
144. As of September 21, 2011, moreover, Molycorp had not even completed a REE
separation facility – i.e. , a “cracking facility” – according to information the Company had made
publicly available to investors. In fact, as of the date of filing of this Complaint, the Company’s
cracking facility is still not complete. Even if Molycorp had completed its cracking facility prior to
- 67 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 73 of 137
the Class Period, the Company was still far from being capable of separating HREEs (which do not
exist at Mountain Pass) from other REEs at the Mountain Pass mine. Indeed, the Company, after
completing the cracking facility would also need to develop what is known as a “solvent exchange”
system ( i.e. , a process leach solution “PLS”) ultimately to separate HREEs from low value LREEs.
145. With regard to the status of the Company’s “cracking facility” and the “PLS” system
during the Class Period, an industry expert with knowledge of Molycorp’s operations remarked:
Let me get this straight: in a solvent exchange (SX) plaint not yet built, not yet proven in, or run up to capacity after the proving-in bugs are worked out, Molycorp is going to run process leach solution (PLS) from an ore concentrate that has not yet determined can be produced, with an extraction efficiency that has no yet determined to be economical – this additional HREE-containing PLS will be run simultaneously or on top of the PLS derived from the Mountain Pass bastnaesite concentrate – which has not yet been run in the new plant. All this in a year.
The assumption must be that since the old SX plant is creaking along at whatever level – it has been said to be between 1,800 and 5,000 tones of “oxides” per year – then a new one must be able to do its job at an even larger throughput volume and for whatever ore PLS comes along – if it’s running the same process.
This is complete and utter engineering and chemical nonsense .
Other than that – it’s a great story .
Not only had defendant Smith conceded on September 21, 2011 that the Company’s recycling
strategy for producing HREEs is “not effective” but experts with knowledge of Molycorp’s
operations confirmed that the Company’s cracking facility and process to separate valuable HREE,
that did not even exist at Mountain Pass, was otherwise “engineering and chemical nonsense.”
146. On October 20, 2011, Molycorp held its 2011 Mountain Pass Investor Day.
Defendants Smith and Burba, and other Molycorp executives participated and spoke at the event.
During the Mountain Pass Investor Day, defendants presented a series of PowerPoint slides stating
that the Company would produce dysprosium and terbium from the Mountain Pass mine in
- 68 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 74 of 137
commercial volumes. In a presentation made by defendants during the Mountain Pass Investor Day,
defendants further stated that the Company would be producing HREE, including dysprosium and
terbium, during Phase I and Phase II of Project Phoenix.
147. Defendants’ October 20, 2011 statements concerning the production of terbium and
dysprosium from the Mountain Pass mine were misleading when made for the following reasons:
(a) Shortly before Molycorp conducted its July 2010 IPO, Goldman Sachs sold its
private investment in the Company because Goldman Sachs had concluded that Mountain Pass’ lack
of commercial amounts of HREEs and the mine’s relatively low percentage of the key LREE,
neodymium, as compared to the Company’s non-Chinese high volume rivals, such as Lynas
Corporation, placed Molycorp at a competitive disadvantage (¶98);
(b) Prior to and throughout the Class Period, daily analysis of 20 to 30 samples of
critical solvent extraction circuits of Mountain Pass ore body were performed. Each one of these
analyses confirmed there was no dysprosium or terbium in the Mountain Pass ore body and the
elements could not be produced from the Mountain Pass ore body in commercially significant
quantities (¶94);
(c) During the Class Period, investigations of float tests of the Mountain Pass ore
body revealed that commercially viable volumes of HREEs did not exist in the Mountain pass ore
and the results of these tests were maintained in the Company’s computerized LIMS, which was
widely accessible to the Company personnel, including Company management (¶94);
(d) During the Class Period, Molycorp made several efforts to purchase
companies with proven deposits of commercial volumes and recoverable levels of HREEs to
- 69 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 75 of 137
perpetuate the illusion that the Mountain Pass mine contained significant volumes of HREEs, which
it did not (¶96);
(e) The trace amounts of HREEs that do exist at Mountain Pass are associated
with the dangerously radioactive element thorium and, therefore, Molycorp, prior to becoming a
publicly-traded company, never attempted to extract traces of contaminated HREEs. Further,
Molycorp does not currently have sufficient separation technology in place to extract HREEs even if
they existed at Mountain Pass (¶97);
(f) Additional analysis of the Mountain Pass ore body, which became publicly
available after the Class Period, revealed a weight to volume of 0.0% for key HREEs such as
dysprosium and terbium;
(g) An internal written report in existence as of June 2009, written by a Vice
President of Molycorp, indicated that the Mountain Pass ore body did not have commercially viable
amounts of HREEs (¶97); and
(h) Molycorp failed to disclose to investors that because there were no
commercially viable amounts of HREEs at the Mountain Pass mine, the Company could not produce
commercially viable amounts of highly-valued HREEs during Phase I or Phase II of Project Phoenix
(¶¶94, 97, 149).
148. As a result of defendants’ October 20, 2011 misleading statements, the price of
Molycorp’s securities continued to trade at artificially inflated levels.
149. Between November 8 and November 10, 2011, news began entering the market that,
in direct contradiction to defendants’ Class Period statements, Molycorp had not determined whether
any quantities of HREEs existed at the Mountain Pass mine and that Molycorp had no plans to
- 70 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 76 of 137
actually produce HREEs from the Mountain Pass ore body, particularly dysprosium and terbium,
during Phase I and Phase II of Project Phoenix. For instance, during an November 8-10, 2011 Motor
& Motion Association Technical Conference, a Molycorp senior executive informed participants at
the conference that the Company had not found any quantities, let alone commercial quantities, of
HREEs in the Mountain Pass ore body and that HREEs would not be produced during Phase I or
Phase II of Project Phoenix.
150. On November 10, 2011, Molycorp released its 3Q11 financial results, announcing
“record sales,” record “gross margin” and “record operating income.” But during the Company’s
3Q11 earnings conference call that same day, defendant Smith stated that the furthest the Company
had come along in actually identifying HREEs at Mountain Pass was only that the Company was
building a “cracking facility” (in order to separate HREEs), which investors had long understood to
be far from completion and would neither be economical nor efficient.
151. In reaction to the revelation of this news, and notwithstanding the announcement of
“record” 3Q11 revenues and earnings, the Company’s common stock price dropped from a
November 8, 2011 closing price of $42.29 per share to close at $33.45 on November 11, 2011. The
Company’s preferred stock dropped from a November 8, 2011 closing price of $80.04 per share to
close at $69.92 on November 11, 2011.
POST CLASS-PERIOD EVENTS
152. Despite announcing record financial results on November 10, 2011, market
participants reacted negatively to defendants’ disclosures concerning the status of whether HREEs
even existed at Mountain Pass. For instance, on November 11, 2011, Technology Metals Research
- 71 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 77 of 137
reported in an article entitled “What Molycorp Has NOT Said About Its Future Rare Earth
Production (Until Now)”:
Yesterday I listened to a conference call hosted by Molycorp Inc. . . . to discuss the company’s Q3 2011 financial performance. . . . No surprises there; Mark Smith, the company’s CEO, pointed out the record revenues that the company earned in this period, which of course is great news for Molycorp shareholders.
As the call proceeded, Mr. Smith started to review what he called the company’s “multi-pronged heavy rare-earth strategy” for the mid- and long term. My ears pricked up at this point . . . .
* * *
I’ve wondered for a long time now, just how Molycorp intended to produce these [heavy] REEs in “commercially significant quantities,” given the small quantities present in the ore body. Surely it wouldn’t make sense, I thought, to build HREE separation circuits, given the significant costs associated with such a capability, for such a small quantity. I know others have wondered the same thing, how such capabilities could be accounted for in the $781 million budget for Project Phoenix.
153. On November 13, 2011, Seeking Alpha noted in an article entitled “Molycorp Loses
Big Despite Reporting Strong Earnings”: during the 3Q11 earnings call “[t]he most interesting
question came from an analyst at Jacob Securities [who] asked for more details on Molycorp’s
potential produce heavy rare earths. Smith stated that the most advanced part of the heavy rare earth
strategy is the new cracking facility.”
154. On January 17, 2012, Scott Matusow with Seeking Alpha published an article entitled
“Molycorp: Don’t Buy Into The Hype,” criticizing the Insider Selling Defendants’ Class Period
insider sales in light of the Company’s poor stock price performance:
I first heard of Molycorp back in the summer of 2011 when a fellow investor brought it to my attention. The stock price at that time was around $55 a share. I decided to do some basic [due diligence] on the company and found what I considered to be red flags everywhere. I began my DD by first looking at the
- 72 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 78 of 137
insider transactions . . . . We can clearly see almost every insider sold their shares at around 50 dollars.
How much profit did most of these insiders make?
Insiders bought near the lows in 2010 when this stock first arrived on the NYSE. Most insiders bought at $14 a share. Why did all the insiders purchase massive amounts of shares at $14? Something smells wrong here .
But who can blame them for selling? They had huge profits from $14 to $50 a share. The major red flag here is that only 2 of them bought back any shares . How confident were these guys about their own company if they did not “flip” their shares? I know if I had confidence in my company’s future, I would certainly buy back shares after taking massive profit, wouldn’t you?
This was the first red flag for me with Molycorp.
Molycorp’s big buzz was over their purchase of their Mountain Pass mine in California. Molycorp suggested that this mine would yield billions in rare earth metals once they raised enough money via public offerings to get it back online safely using the latest green technologies.
*
I began to think to myself; “Why would California allow this mine to come back online when they are overwhelmingly liberal minded, environmentally friendly regulators?”
Now I was getting a better picture why insiders were not buying back into their company. They had the same doubts I was having about their mine ever being able to produce anything substantial .
This was another huge red flag for me. I went to the stock boards to see what people were saying. It was pure madness in exuberance, as next to no one was seeing what I was seeing with Molycorp. Most were talking about how rich they will become. Others were saying how Molycorp would go past $500 a share. I was shocked – I know bubble talk when I see it .
155. On February 6, 2012, Travis Hoium published an article titled “Molycorp Making
Head-Scratching Deals,” which criticized management’s insider sales. The article stated:
Molycorp (NYSE: MCP ) continues to sell shares as fast as it can before it churns out any real production. I’m beginning to wonder why management is so eager to sell shares if the company is in such a strong position.
- 73 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 79 of 137
156. On April 2, 2012, Bloomberg reported that “[w]hile Molycorp’s mine . . . once met all
the world’s demand, it . . . doesn’t have . . . ‘heavy’ rare-earth metals that command the highest
prices.”
157. On April 25, 2012, the Congressional Research Service issued a report entitled “Rare
Earth Elements in National Defense: Background, Oversight Issues, and Options for Congress.”
The report acknowledged congressional members’ concerns about the national security implications
of U.S. dependence on foreign sources for REEs because, inter alia , “the United States has no
production of some heavy rare earths (terbium to lutetium and yttrium).” In the report, Andy Davis,
the Manager of Public Affairs of Molycorp, confirmed that the Company was not producing HREEs
and was only “stockpiling heavy concentrates know as SEG (primarily consisting of samarium,
europium and gadolinium).”
LOSS CAUSATION/ECONOMIC LOSS
158. During the Class Period, as detailed herein, defendants engaged in a scheme to
deceive investors and the market and a course of conduct that artificially inflated and maintained
Molycorp’s stock price and operated as a fraud or deceit on Class Period purchasers of the
Company’s publicly traded securities by misrepresenting and omitting material information about
the operational capabilities of Molycorp’s Mountain Pass mine. When defendants’ prior
misrepresentations and omissions about whether the Company had identified any commercial viable
quantities of HREEs at Mountain Pass, Molycorp’s stock price fell precipitously as the prior
artificial inflation came out of the price. As a result of their purchases of Molycorp stock, including
the Company’s preferred stock, during the Class Period, plaintiffs and other members of the Class,
as defined in ¶¶10-21, suffered economic loss, i.e. , damages, under the federal securities laws.
- 74 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 80 of 137
159. As illustrated in the chart below, defendants’ false statements and omissions,
identified herein at ¶¶107-111, 114-117, 120-122, 127-129, 132-134, 138, 146, had the intended
effect and caused the Company’s stock to trade at artificially inflated levels up to and above $70 per
share during the Class Period:
Molycorp $80
$70
$60 w
CO I- G) o- $50
0 In
$40
$30
$20 0110312011 0310212011 0412812011 0612412011 0812212011 10118/2011 1211412011
0210112011 0313012011 0512612011 0712512011 0912012011 1111512011
160. As a direct result of disclosures between November 8 and November 10, 2011, the
Company’s securities prices suffered an abnormal decline in value. By November 10, 2011, after
information had entered the market that the Company did not have commercially viable quantities of
HREEs and that Molycorp would not be producing such materials from the Mountain Pass during
- 75 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 81 of 137
either Phase I or Phase II of Project Phoenix, the Company’s stock priced dropped $6.18 per share,
or 22.0%, on high trading volume. Individually and collectively, these drops removed the inflation
from Molycorp’s security prices, causing real economic loss to investors who had purchased the
stock during the Class Period.
161. The decline in the Company’s securities prices at the end of the Class Period was a
direct result of the nature and extent of defendants’ prior false statements and omissions being
revealed to investors and the market. The timing and magnitude of Molycorp’s securities price
declines negate any inference that the loss suffered by plaintiffs and other Class members was
caused by changed market conditions, macroeconomic or industry factors or Company-specific facts
unrelated to the defendants’ fraudulent conduct. The economic loss, i.e., damages, suffered by
plaintiffs and other members of the Class, was a direct result of defendants’ fraudulent scheme to
artificially inflate the Company’s securities prices and maintain the price at artificially inflated levels
and the subsequent significant decline in the value of Molycorp’s securities prices when defendants’
prior misrepresentations and omissions were revealed.
FRAUD-ON-THE-MARKET PRESUMPTION OF RELIANCE
162. At all relevant times, the market for Molycorp common and preferred stock before,
during and after the Class Period was efficient for the following reasons, among others:
(a) Molycorp securities were listed and or actively traded on an efficient and
automated trading market, the NYSE;
(b) Molycorp filed periodic public reports with the SEC;
(c) Molycorp regularly communicated with investors in the U.S., through
established market communications mechanisms, including through regular dissemination of press
- 76 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 82 of 137
releases on U.S. national circuits of major newswire services and through other wide-ranging public
disclosures, such as communications with the financial press and other reporting services and via the
Internet;
(d) Molycorp was followed by numerous major securities and industry analysts
and brokerage firms throughout the Class Period who regularly issued reports that were distributed
to investors. Each of these reports were publicly available and entered the public marketplace;
(e) Molycorp had a large market capitalization in excess of $1 billion throughout
the Class Period; and
(f) During the Class Period, on August 5, 2011, Molycorp filed a Form S-3ASR
with the SEC, which may only be filed by well-known seasoned issuers.
163. As a result of the foregoing, the market for Molycorp’s securities promptly digested
current, public information regarding Molycorp from publicly available sources and reflected such
information in the price of the Company’s securities. Accordingly, all purchasers or acquirers of
Molycorp securities during the Class Period suffered similar injury through their purchase or
acquisition of Molycorp securities at artificially inflated prices.
NO SAFE HARBOR
164. The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
Particularly, defendants’ statements concerning the production of HREEs from the Mountain Pass
ore body cannot be forward-looking statements subject to the Private Securities Litigation Reform
Act of 1995’s safe-harbor provision because HREEs existed or, as alleged herein, did not exist in
- 77 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 83 of 137
commercially viable quantities at Mountain Pass at the time defendants made their Class Period
statements.
165. Many of the specific statements pleaded herein, moreover, were not identified as
“forward-looking statements” when made. To the extent there were any forward-looking statements,
there were no meaningful cautionary statements identifying important factors that could cause actual
results to differ materially from those in the purportedly forward-looking statements. Alternatively,
to the extent that the statutory safe harbor does apply to any forward-looking statements pleaded
herein, defendants are liable for those false forward-looking statements because at the time each of
those forward-looking statements were made, the particular speaker knew that the particular
forward-looking statement was false, and/or the forward-looking statement was authorized and/or
approved by an executive officer of Molycorp who knew that those statements were false when
made.
166. Defendants failed to provide any meaningful discussion of the risks which,
throughout the Class Period, were materially and adversely impacting the Company’s operations.
CLASS ACTION ALLEGATIONS
167. Plaintiffs bring this action as a class action pursuant to Fed. R. Civ. P. 23(a) and
(b)(3) on behalf of the Class. Excluded from the Class are defendants and their families, 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.
168. The members of the Class are so numerous that joinder of all members is
impracticable. The disposition of their claims in a class action will provide substantial benefits to
- 78 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 84 of 137
the parties will preserve scarce Court resources. Molycorp has millions of securities trading in the
U.S., owned by hundreds, if not thousands, of institutional and retail investors. Record owners and
other members of the Class may be determined by Molycorp, its transfer agent and depository
institutions and 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.
169. There is a well-defined community of interest in the questions of law and fact
involved in this case. Questions of law and fact common to the members of the Class which
predominate over questions which may affect individual Class members include:
(a) Whether the 1933 Act and 1934 Act were violated by defendants;
(b) Whether defendants omitted and/or misrepresented material facts;
(c) Whether defendants’ statements omitted material facts necessary to make the
statements made, in light of the circumstances under which they were made, not misleading;
(d) With respect to plaintiffs’ 1934 Act claims, whether defendants knew or
deliberately disregarded that their statements were false and misleading; and
(e) The extent of damage sustained by Class members and the appropriate
measure of damages.
170. Plaintiffs’ claims are typical of those of the Class because plaintiffs and the Class
sustained damages from defendants’ wrongful conduct.
171. Plaintiffs will adequately protect the interests of the Class and have retained counsel
who are experienced in class action securities litigation. Plaintiffs have no interests which conflict
with those of the Class.
- 79 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 85 of 137
172. A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. Furthermore, as the damages suffered by individual Class members
may be relatively small, the expense and burden of individual litigation make it impracticable for
members of the Class to individually redress wrongs perpetrated by the defendants. There will be no
difficulty in the management of this case as a class action.
FIRST CLAIM FOR RELIEF
For Violations of §10(b) of the 1934 Act and Rule 10b-5 Against Defendants Molycorp, Smith, KMSMITH, Allen, Ashburn, Bhappu, Burba, Cogut,
Pegasus, Dolan, RCF, Kristoff, T-II Holdings, Henry and Thompson
173. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein. The First Claim is brought pursuant to §10(b) of the 1934 Act, 15 U.S.C. §78j(b), and
Rule 10b-5 promulgated thereunder, 17 C.F.R. 240.10b-5, on behalf of all Class members against the
1934 Act Defendants.
174. During the Class Period, defendants, and each of them, carried out a plan, scheme and
course of conduct which was intended to and, throughout the Class Period, did: (a) deceive the
investing public, including plaintiffs and other Class members, as alleged herein; (b) artificially
inflate and maintain the market price of Molycorp securities; and (c) cause plaintiffs and other
members of the Class to purchase Molycorp securities at artificially inflated prices and, as a result,
suffer economic losses when the truth about defendants’ fraud was revealed. In furtherance of this
unlawful scheme, plan and course of conduct, the 1934 Act Defendants, and each of them, took the
actions set forth herein.
175. During the Class Period, the 1934 Act Defendants: (a) employed devices, schemes
and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material
- 80 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 86 of 137
facts necessary to make the statements not misleading; and (c) engaged in acts, practices and a
course of business which operated as a fraud and deceit upon the purchasers of the Company’s
securities in an effort to maintain artificially high market prices for Molycorp securities in violation
of §10(b) of the 1934 Act and Rule 10b-5. All the 1934 Act Defendants are sued either as primary
participants in the wrongful and illegal conduct charged herein or as controlling persons as alleged
below.
176. The 1934 Act 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 Molycorp as specified herein.
177. The 1934 Act 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 Molycorp’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 in order to make
the statements made about Molycorp and its business operations and future prospects in the 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 which operated as a fraud and deceit
upon the purchasers of Molycorp securities during the Class Period.
178. The 1934 Act Defendants’ primary liability, and controlling person liability, arises
from the following facts: (a) the 1934 Act Defendants were high-level executives and directors at the
Company during the Class Period; (b) the 1934 Act Defendants were privy to and participated in the
- 81 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 87 of 137
creation, development and reporting of the Company’s Mountain Pass mining capabilities; and (c)
the 1934 Act Defendants were aware of the Company’s dissemination of information to the investing
public which they knew or recklessly disregarded was materially false and misleading.
179. The 1934 Act 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. The
1934 Act Defendants’ material misrepresentations and omissions were made knowingly or recklessly
and for the purpose and effect of concealing Molycorp’s operating condition and business prospects
from the investing public and supporting the artificially inflated price of its securities. As
demonstrated by the alleged misstatements and omissions regarding the Company’s operations
throughout the Class Period, the 1934 Act 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.
180. 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 of Molycorp securities was
artificially inflated during the Class Period. In ignorance of the fact that market prices of Molycorp
publicly traded securities were artificially inflated, and relying directly or indirectly on the false and
misleading statements made by defendants, or upon the integrity of the market in which the
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
- 82 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 88 of 137
Class Period, plaintiffs and the other members of the Class acquired Molycorp securities during the
Class Period at artificially inflated prices and were damaged thereby.
181. 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 of the true financial condition and business
prospects of Molycorp, which were not disclosed by defendants, plaintiffs and other members of the
Class would not have purchased or otherwise acquired their Molycorp securities, or, if they had
acquired such securities during the Class Period, they would not have done so at the artificially
inflated prices which they paid.
182. By virtue of the foregoing, defendants have violated §10(b) of the 1934 Act, and Rule
10b-5 promulgated thereunder.
183. 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.
SECOND CLAIM FOR RELIEF
For Violations of §20(a) of the 1934 Act Against Defendants Molycorp, Smith, KMSMITH, Allen, Ashburn, Bhappu, Burba, Cogut,
Pegasus, Dolan, RCF, Kristoff, T-II Holdings, Henry and Thompson
184. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein. The Second Claim is brought pursuant to §20(a) of the 1934 Act, 15 U.S.C. §78t(a), on
behalf of all Class members against the 1934 Act Defendants.
185. The 1934 Act Defendants acted as controlling persons of Molycorp within the
meaning of §20(a) of the 1934 Act as alleged herein. By virtue of their high-level positions, and
- 83 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 89 of 137
their ownership and contractual rights, participation in and awareness of the Company’s operations
and intimate knowledge of the statements disseminated to the investing public, the 1934 Act
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 statements which plaintiffs contend are false and misleading. The 1934 Act Defendants
were provided with or had unlimited access to copies of the Company’s reports, press releases,
public filings and other statements alleged by plaintiffs 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 cause
the statements to be corrected.
186. In particular, the 1934 Act Defendants had direct and supervisory involvement in the
day-to-day operations of the Company and, therefore, are 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.
187. As set forth above, the 1934 Act Defendants each violated §10(b) and Rule 10b-5 by
their acts and omissions as alleged in this Complaint. By virtue of their positions as controlling
persons, the 1934 Act Defendants are liable pursuant to §20(a) of the 1934 Act. As a direct and
proximate result of the 1934 Act Defendants’ wrongful conduct, plaintiffs and other members of the
Class suffered damages in connection with their purchases of the Company’s securities during the
Class Period.
- 84 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 90 of 137
THIRD CLAIM FOR RELIEF
For Violations of §20A(a) of the 1934 Act Against Defendants RCF and Bhappu
188. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein.
189. Plaintiffs Marner, Iron Workers, McCarthy, Grabowski, Martiny, Dowd, Hare and
DeStefano purchased Molycorp stock contemporaneously with the sales of Molycorp stock by
defendants RCF and Bhappu.
190. At all times relevant hereto, Bhappu was a partner at RCF and served on RCF’s
investment committee while also serving as Chairman of the Board of Molycorp.
191. By virtue of Bhappu’s position as a senior insider and Chairman of the Board of
Molycorp, and his actions and inactions, RCF was in possession of material, adverse, non-public
information about Molycorp at the time of its sales of more than $694 million of RCF’s Molycorp
stock.
192. Through the sales of Molycorp stock while in possession of material, adverse, non-
public information detailed herein, RCF and Bhappu violated the 1934 Act and applicable rules and
regulations thereunder, as set forth above.
193. Plaintiffs Marner, Iron Workers, McCarthy, Grabowski, Martiny, Dowd, Hare and
DeStefano, and all other members of the Class who purchased shares of Molycorp stock
contemporaneously with the sales of Molycorp stock by RCF and Bhappu: (1) have suffered
substantial damages as a result of the violations of §§10(b) and 20(a) and Rules 10b-5 and 10b5-1
herein described; and (2) would not have purchased Molycorp stock at the prices they paid, or at all,
if they had been aware of the material, non-public information that RCF and Bhappu had obtained.
- 85 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 91 of 137
FOURTH CLAIM FOR RELIEF
For Violations of §20A(b) of the 1934 Act Against Defendants Bhappu And Dolan
194. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein.
195. Bhappu and Dolan acted as controlling persons of RCF within the meaning of
§20A(b) of the 1934 Act as alleged herein. By virtue of their high-level positions, and their
ownership and contractual rights, participation in and awareness of RCF’s operations, Bhappu and
Dolan had the power to influence and control and did influence and control, directly or indirectly,
the decision-making of RCF, including RCF’s sales of Molycorp stock alleged herein.
196. In particular, Bhappu and Dolan had direct and supervisory involvement in the day-
to-day operations of RCF and, therefore, are 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.
197. As set forth above, RCF, Bhappu and Dolan each violated §10(b) and Rule 10b-5 by
their acts and omissions as alleged in this Complaint. By virtue of their positions as controlling
persons, Bhappu and Dolan are liable pursuant to §20A(b) of the 1934 Act. As a direct and
proximate result of the 1934 Act Defendants’ wrongful conduct, plaintiffs and other members of the
Class suffered damages in connection with their purchases of the Company’s securities during the
Class Period.
- 86 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 92 of 137
FIFTH CLAIM FOR RELIEF
For Violations of §20A(c) of the 1934 Act Against Defendants Bhappu and Dolan
198. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein.
199. Bhappu and Dolan supplied RCF with material, adverse, non-public information
concerning Molycorp.
200. Bhappu, as Chairman of Molycorp’s Board of Directors, owed a fiduciary duty to
Molycorp and to its shareholders to abstain from communicating the material, adverse, non-public
information described herein for non-corporate purposes outside of Molycorp.
201. Dolan, as a member of Molycorp’s Board of Directors, owed a fiduciary duty to
Molycorp and to its shareholders to abstain from communicating the material, adverse, non-public
information described herein for non-corporate purposes outside of Molycorp.
202. Bhappu and Dolan breached their respective duty to Molycorp by communicating or
otherwise failing to protect from disclosure material, adverse, non-public information concerning
Molycorp to RCF, and by causing RCF to trade on this information, as set forth above.
203. As a result of Bhappu’s and Dolan’s communicating or otherwise failing to protect
from disclosure material, adverse, non-public information to RCF, Bhappu, Dolan and RCF are
jointly liable for RCF’s violations of Section 20A(a).
204. Through the sales of Molycorp stock while in possession of material, adverse, non-
public information detailed herein, RCF, Bhappu and Dolan violated the 1934 Act and applicable
rules and regulations thereunder, as set forth above.
- 87 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 93 of 137
205. Plaintiffs Marner, Iron Workers, McCarthy, Grabowski, Martiny, Dowd, Hare and
DeStefano, and all other members of the Class who purchased shares of Molycorp stock
contemporaneously with the sales of Molycorp stock by RCF, Bhappu and Dolan: (1) have suffered
substantial damages as a result of the violations of §§10(b) and 20(a) and Rules 10b-5 and 10b5-1
herein described; and (2) would not have purchased Molycorp stock at the prices they paid, or at all,
if they had been aware of the material, non-public information that RCF, Bhappu and Dolan had
obtained.
SIXTH CLAIM FOR RELIEF
For Violations of §20A(a) of the 1934 Act Against Defendants Pegasus, Cogut and Kristoff
206. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein.
207. Plaintiffs Marner, Iron Workers, McCarthy, Grabowski, Martiny, Dowd, Hare and
DeStefano purchased Molycorp stock contemporaneously with the sales of Molycorp stock by
defendants Pegasus, Cogut and Kristoff.
208. At all times relevant hereto, Cogut was the founder and managing partner of Pegasus
and the managing director of Pegasus Capital, LLC which controlled Molycorp LLC, the entity
formed to acquire the Mountain Pass mine. Kristoff served as the CEO of T-II Holdings while also
serving as a member of Molycorp’s Board of Directors.
209. By virtue of Cogut’s position as a senior insider and founder and managing partner of
Pegasus and managing director of Pegasus Capital, LLC, which controls Molycorp LLC, the entity
formed to acquire the Mountain Pass mine, and Kristoff’s position as a senior insider and member of
Molycorp’s Board of Directors, and their actions and inactions, Pegasus was in possession of
- 88 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 94 of 137
material, adverse, non-public information about Molycorp at the time of its sales of more than $618
million of Pegasus’ Molycorp stock.
210. Through the sales of Molycorp stock while in possession of material, adverse, non-
public information detailed herein, Pegasus, Cogut and Kristoff violated the 1934 Act and applicable
rules and regulations thereunder, as set forth above.
211. Plaintiffs Marner, Iron Workers, McCarthy, Grabowski, Martiny, Dowd, Hare and
DeStefano, and all other members of the Class who purchased shares of Molycorp stock
contemporaneously with the sales of Molycorp stock by Pegasus, Cogut and Kristoff: (1) have
suffered substantial damages as a result of the violations of §§10(b) and 20(a) and Rules 10b-5 and
10b5-1 herein described; and (2) would not have purchased Molycorp stock at the prices they paid,
or at all, if they had been aware of the material, non-public information that Pegasus, Cogut and
Kristoff had obtained.
SEVENTH CLAIM FOR RELIEF
For Violations of §20A(b) of the 1934 Act Against Defendants Cogut and Kristoff
212. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein.
213. Cogut and Kristoff acted as controlling persons of Pegasus within the meaning of
§20A(b) of the 1934 Act as alleged herein. By virtue of their high-level positions, and their
ownership and contractual rights, participation in and awareness of Pegasus’ operations, Cogut and
Kristoff had the power to influence and control and did influence and control, directly or indirectly,
the decision-making of Pegasus, including Pegasus’ sales of Molycorp stock alleged herein.
- 89 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 95 of 137
214. In particular, Cogut and Kristoff had direct and supervisory involvement in the day-
to-day operations of Pegasus and, therefore, are 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.
215. As set forth above, the Pegasus, Cogut and Kristoff each violated §10(b) and Rule
10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their positions as
controlling persons, Cogut and Kristoff are liable pursuant to §20A(b) of the 1934 Act. As a direct
and proximate result of the 1934 Act Defendants’ wrongful conduct, plaintiffs and other members of
the Class suffered damages in connection with their purchases of the Company’s securities during
the Class Period.
EIGHTH CLAIM FOR RELIEF
For Violations of §20A(c) of the 1934 Act Against Defendants Cogut and Kristoff
216. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein.
217. Cogut and Kristoff supplied Pegasus with material, adverse, non-public information
concerning Molycorp.
218. Cogut, as managing partner of Pegasus and managing director of Pegasus Capital,
LLC, which controls Molycorp LLC, the entity formed to acquire the Mountain Pass mine, owed a
fiduciary duty to Molycorp and to its shareholders to abstain from communicating the material,
adverse, non-public information described herein for non-corporate purposes outside of Molycorp.
- 90 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 96 of 137
219. Kristoff, as a member of Molycorp’s Board of Directors, owed a fiduciary duty to
Molycorp and to its shareholders to abstain from communicating the material, adverse, non-public
information described herein for non-corporate purposes outside of Molycorp.
220. Cogut and Kristoff breached their respective duty to Molycorp by communicating or
otherwise failing to protect from disclosure material, adverse, non-public information concerning
Molycorp to Pegasus, and by causing Pegasus to trade on this information, as set forth above.
221. As a result of Cogut’s and Kristoff’s communicating or otherwise failing to protect
from disclosure material, non-public information to Pegasus, Cogut, Kristoff and Pegasus are jointly
liable for Pegasus’ violations of §20A(a).
222. Through the sales of Molycorp stock while in possession of material, adverse, non-
public information detailed herein, Pegasus, Cogut and Kristoff violated the 1934 Act and applicable
rules and regulations thereunder, as set forth above.
223. Plaintiffs Marner, Iron Workers, McCarthy, Grabowski, Martiny, Dowd, Hare and
DeStefano, and all other members of the Class who purchased shares of Molycorp stock
contemporaneously with the sales of Molycorp stock by Pegasus, Cogut and Kristoff: (1) have
suffered substantial damages as a result of the violations of §§10(b) and 20(a) and Rules 10b-5 and
10b5-1 herein described; and (2) would not have purchased Molycorp stock at the prices they paid,
or at all, if they had been aware of the material, non-public information that Pegasus, Cogut and
Kristoff had obtained.
- 91 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 97 of 137
NINTH CLAIM FOR RELIEF
For Violations of §20A(a) of the 1934 Act Against Defendants T-II Holdings, Cogut and Kristoff
224. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein.
225. Plaintiffs Marner, Iron Workers, McCarthy, Grabowski, Martiny, Dowd, Hare and
DeStefano purchased Molycorp stock contemporaneously with the sales of Molycorp stock by
defendants T-II Holdings, Cogut and Kristoff.
226. At all times relevant hereto, Cogut was the founder and managing partner of Pegasus
and the managing director of Pegasus Capital, LLC which controlled Molycorp LLC, the entity
formed to acquire the Mountain Pass mine. Kristoff served as the CEO of T-II Holdings while also
serving as a member of Molycorp’s Board of Directors.
227. By virtue of Cogut’s position as a senior insider and founder and managing partner of
Pegasus and managing director of Pegasus Capital, LLC, which controls Molycorp LLC, the entity
formed to acquire the Mountain Pass mine, and Kristoff’s position as a senior insider and member of
Molycorp’s Board of Directors, and their actions and inactions, T-II Holdings was in possession of
material, adverse, non-public information about Molycorp at the time of its sales of more than $231
million of T-II Holdings’ Molycorp stock.
228. Through the sales of Molycorp stock while in possession of material, adverse, non-
public information detailed herein, T-II Holdings, Cogut and Kristoff violated the 1934 Act and
applicable rules and regulations thereunder, as set forth above.
229. Plaintiffs Marner, Iron Workers, McCarthy, Grabowski, Martiny, Dowd, Hare and
DeStefano, and all other members of the Class who purchased shares of Molycorp stock
- 92 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 98 of 137
contemporaneously with the sales of Molycorp stock by T-II Holdings, Cogut and Kristoff: (1) have
suffered substantial damages as a result of the violations of §§10(b) and 20(a) and Rules 10b-5 and
10b5-1 herein described; and (2) would not have purchased Molycorp stock at the prices they paid,
or at all, if they had been aware of the material, non-public information that T-II Holdings, Cogut
and Kristoff had obtained.
TENTH CLAIM FOR RELIEF
For Violations of §20A(b) of the 1934 Act Against Defendants Cogut and Kristoff
230. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein.
231. Cogut and Kristoff acted as controlling persons of T-II Holdings within the meaning
of §20A(b) of the 1934 Act as alleged herein. By virtue of their high-level positions, and their
ownership and contractual rights, participation in and awareness of T-II Holdings’ operations, Cogut
and Kristoff had the power to influence and control and did influence and control, directly or
indirectly, the decision-making of T-II Holdings, including T-II Holdings’ sales of Molycorp stock
alleged herein.
232. In particular, Cogut and Kristoff had direct and supervisory involvement in the day-
to-day operations of T-II Holdings and, therefore, are 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.
233. As set forth above, T-II Holdings, Cogut and Kristoff each violated §10(b) and Rule
10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their positions as
controlling persons, Cogut and Kristoff are liable pursuant to §20A(b) of the 1934 Act. As a direct
- 93 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 99 of 137
and proximate result of the 1934 Act Defendants’ wrongful conduct, plaintiffs and other members of
the Class suffered damages in connection with their purchases of the Company’s securities during
the Class Period.
ELEVENTH CLAIM FOR RELIEF
For Violations of §20A(c) of the 1934 Act Against Defendants Cogut and Kristoff
234. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein.
235. Cogut and Kristoff supplied T-II Holdings with material, adverse, non-public
information concerning Molycorp.
236. Cogut, as managing partner of Pegasus and managing director of Pegasus Capital,
LLC, which controls Molycorp LLC, the entity formed to acquire the Mountain Pass mine, owed a
fiduciary duty to Molycorp and to its shareholders to abstain from communicating the material,
adverse, non-public information described herein for non-corporate purposes outside of Molycorp.
237. Kristoff, as a member of Molycorp’s Board of Directors, owed a fiduciary duty to
Molycorp and to its shareholders to abstain from communicating the material, adverse, non-public
information described herein for non-corporate purposes outside of Molycorp.
238. Cogut and Kristoff breached their respective duty to Molycorp by communicating or
otherwise failing to protect from disclosure material, adverse, non-public information concerning
Molycorp to T-II Holdings, and by causing T-II Holdings to trade on this information, as set forth
above.
- 94 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 100 of
137
239. As a result of Cogut’s and Kristoff’s communicating or otherwise failing to protect
from disclosure material, non-public information to T-II Holdings, Cogut, Kristoff and T-II Holdings
are jointly liable for T-II Holdings’ violations of §20A(a).
240. Through the sales of Molycorp stock while in possession of material, adverse, non-
public information detailed herein, T-II Holdings, Cogut and Kristoff violated the 1934 Act and
applicable rules and regulations thereunder, as set forth above.
241. Plaintiffs Marner, Iron Workers, McCarthy, Grabowski, Martiny, Dowd, Hare and
DeStefano, and all other members of the Class who purchased shares of Molycorp stock
contemporaneously with the sales of Molycorp stock by T-II Holdings, Cogut and Kristoff: (1) have
suffered substantial damages as a result of the violations of §§10(b) and 20(a) and Rules 10b-5 and
10b5-1 herein described; and (2) would not have purchased Molycorp stock at the prices they paid,
or at all, if they had been aware of the material, non-public information that T-II Holdings, Cogut
and Kristoff had obtained.
TWELFTH CLAIM FOR RELIEF
For Violations of §20A(a) of the 1934 Act Against Defendants KMSMITH and Smith
242. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein.
243. Plaintiffs Marner, Iron Workers, McCarthy, Grabowski, Martiny, Dowd, Hare and
DeStefano purchased Molycorp stock contemporaneously with the sales of Molycorp stock by
defendants KMSMITH and Smith.
244. At all times relevant hereto, Smith was married to Kimberly Smith and listed on SEC
filings as the contact for KMSMITH while also serving as CEO, President and a member of the
- 95 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 101 of
137
Board of Directors of Molycorp. Kimberly Smith was married to Smith and purportedly had sole
voting and investment power with respect to KMSMITH.
245. By virtue of Smith’s position as senior insider and CEO, President and a member of
the Board of Directors of Molycorp, and his actions and inactions, KMSMITH was in possession of
material, adverse, non-public information about Molycorp at the time of KMSMITH’s sales of more
than $74 million of its Molycorp stock.
246. Through the sales of Molycorp stock while in possession of material, adverse, non-
public information detailed herein, KMSMITH and Smith violated the 1934 Act and applicable rules
and regulations thereunder, as set forth above.
247. Plaintiffs Marner, Iron Workers, McCarthy, Grabowski, Martiny, Dowd, Hare and
DeStefano, and all other members of the Class who purchased shares of Molycorp stock
contemporaneously with the sales of Molycorp stock by KMSMITH and Smith: (1) have suffered
substantial damages as a result of the violations of §§10(b) and 20(a) and Rules 10b-5 and 10b5-1
herein described; and (2) would not have purchased Molycorp stock at the prices they paid, or at all,
if they had been aware of the material, non-public information that KMSMITH and Smith had
obtained.
THIRTEENTH CLAIM FOR RELIEF
For Violations of §20A(b) of the 1934 Act Against Defendant Smith
248. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein.
249. Smith acted as a controlling person of KMSMITH within the meaning of §20A(b) of
the 1934 Act as alleged herein. At all times relevant hereto, Smith was married to Kimberly Smith
- 96 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 102 of
137
and listed on SEC filings as the contact for KMSMITH. Kimberly Smith purportedly had sole
voting and investment power with respect to KMSMITH.
250. By virtue of the nature of KMSMITH, a closely held limited liability corporation and
Smith’s ownership and contractual rights, participation in and awareness of KMSMITH’s operations,
Smith had the power to influence and control and did influence and control, directly or indirectly, the
decision-making of KMSMITH, including KMSMITH’s sales of Molycorp stock alleged herein.
251. In particular, Smith had direct and supervisory involvement in the day-to-day
operations and investment decisions of KMSMITH 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.
252. As set forth above, KMSMITH and Smith each violated §10(b) and Rule 10b-5 by
their acts and omissions as alleged in this Complaint. By virtue of Smith’s position as controlling
person, Smith is liable pursuant to §20A(b) of the 1934 Act. As a direct and proximate result of the
1934 Act Defendants’ wrongful conduct, plaintiffs and other members of the Class suffered damages
in connection with their purchases of the Company’s securities during the Class Period.
FOURTEENTH CLAIM FOR RELIEF
For Violations of §20A(c) of the 1934 Act Against Defendant Smith
253. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein.
254. Smith supplied KMSMITH with material, adverse, non-public information
concerning Molycorp.
- 97 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 103 of
137
255. Smith, as CEO, President and a member of the Board of Directors of Molycorp owed
a fiduciary duty to Molycorp and to its shareholders to abstain from communicating the material,
adverse, non-public information described herein for non-corporate purposes outside of Molycorp.
256. Smith breached his duty to Molycorp by communicating or otherwise failing to
protect from disclosure material, adverse, non-public information concerning Molycorp to
KMSMITH, and by causing KMSMITH to trade on this information, as set forth above.
257. As a result of Smith’s communicating or otherwise failing to protect from disclosure
material, nonpublic information to KMSMITH, Smith and KMSMITH are jointly liable for
KMSMITH’s violations of §20A(a).
258. Through the sales of Molycorp stock while in possession of material, adverse, non-
public information detailed herein, Smith and KMSMITH violated the 1934 Act and applicable rules
and regulations thereunder, as set forth above.
259. Plaintiffs Marner, Iron Workers, McCarthy, Grabowski, Martiny, Dowd, Hare and
DeStefano, and all other members of the Class who purchased shares of Molycorp stock
contemporaneously with the sales of Molycorp stock by KMSMITH and Smith: (1) have suffered
substantial damages as a result of the violations of §§10(b) and 20(a) and Rules 10b-5 and 10b5-1
herein described; and (2) would not have purchased Molycorp stock at the prices they paid, or at all,
if they had been aware of the material, non-public information that KMSMITH and Smith had
obtained.
- 98 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 104 of
137
FIFTEENTH CLAIM FOR RELIEF
For Violations of §20A(a) of the 1934 Act Against Defendants Ashburn, Burba and Thompson
260. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
forth herein.
261. Plaintiffs Marner, Iron Workers, McCarthy, Grabowski, Martiny, Dowd, Hare and
DeStefano purchased Molycorp stock contemporaneously with the sales of Molycorp stock by
defendants Ashburn, Burba and Thompson.
262. At all times relevant hereto, Ashburn was Executive Vice President and General
Counsel of Molycorp, Burba was Executive Vice President and Chief Technology Officer of
Molycorp and Thompson was a Director of Molycorp.
263. By virtue of Ashburn’s, Burba’s and Thompson’s positions as senior insiders of
Molycorp, each was in possession of material, adverse, non-public information about Molycorp at
the time of their sales of more than $14 million of Molycorp stock.
264. Through the sales of Molycorp stock while in possession of material, adverse, non-
public information detailed herein, Ashburn, Burba and Thompson violated the 1934 Act and
applicable rules and regulations thereunder, as set forth above.
265. Plaintiffs Marner, Iron Workers, McCarthy, Grabowski, Martiny, Dowd, Hare and
DeStefano, and all other members of the Class who purchased shares of Molycorp stock
contemporaneously with the sales of Molycorp stock by Ashburn, Burba and Thompson: (1) have
suffered substantial damages as a result of the violations of §§10(b) and 20(a) and Rules 10b-5 and
10b5-1 herein described; and (2) would not have purchased Molycorp stock at the prices they paid,
- 99 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 105 of
137
or at all, if they had been aware of the material, non-public information that Ashburn, Burba and
Thompson had obtained.
ALLEGATIONS SPECIFIC TO THE 1933 ACT ACTION
266. Plaintiffs incorporate by reference each non-fraud based allegation regarding false
and misleading, set forth at ¶¶107-111, 125, 127-129, supra . With respect to the 1933 Act claims,
plaintiffs do not allege that the Company, the 1933 Act Defendants or the Underwriter Defendants
committed fraud or acted with the intent to deceive. Rather, plaintiffs’ allegations of violations of
§§11, 12(a)(2) and 15 of the 1933 Act are the result of negligent conduct triggering the strict liability
provisions of the 1933 Act.
267. In the context of their claims for violations of §§11, 12 and 15 of the 1933 Act,
plaintiffs specifically do not allege that any of the 1933 Act Defendants are liable for fraudulent or
intentional conduct. Furthermore, plaintiffs do not identify or name the Underwriter Defendants as
parties to plaintiffs’ 1934 Act claims.
268. In connection with the 1933 Act claims, plaintiffs allege that the February 2011 and
June 2011 offering documents contained material misstatements and, independently, omitted
material information that was required to be disclosed pursuant to SEC Regulations, particularly
Regulation S-K, Item 303. The material misrepresentations in the offering documents relate to, inter
alia : (a) commercially viable amounts of HREEs (particularly dysprosium) existing at the Mountain
Pass mine; (b) the Company’s claim that the HREEs existing at Mountain Pass would be shipped for
further processing; and (c) that Molycorp would produce HREEs in commercial quantities during
Phase I and Phase II of Project Phoenix.
- 100 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 106 of
137
269. The 1933 Act Defendants each owed to the purchasers of Molycorp’s Preferred
Stock issued in the February 2011 Preferred Stock IPO, as well common stock issued in the June
2011 Secondary Offering, the duty to make a reasonable and diligent investigation of the statements
contained in the offering documents at the time they became effective. This duty includes
performing an appropriate investigation to ensure that the statements contained in the offering
documents were true and that there were no omissions of material fact required to be stated in order
to make the statements contained in the offering documents not materially misleading. Each of the
1933 Act Defendants failed to fulfill these duties. As a consequence, the offering price of the
February 2011 Preferred Stock IPO and the price of the Company’s common shares in the June 2011
Secondary Offering were artificially inflated, and when the truth began to emerge, the prices of these
securities fell, causing injury to plaintiffs and the Class.
MATERIALLY FALSE AND MISLEADING STATEMENTS IN THE OFFERING DOCUMENTS
The February 11, 2011 Offering
270. On or about February 11, 2011, Molycorp issued 2.07 million shares of Preferred
Stock at $100 per share in an IPO, capturing $207 million in gross proceeds. The February 2011
Preferred Stock IPO was underwritten by the Underwriter Defendants.
271. As alleged above , the February 2011 Preferred Stock IPO was made pursuant to
registration statements dated February 7 and February 10, 2011 and a Form 424B4 final prospectus
filed with the SEC on February 14, 2011.
272. The materially false and misleading statements made by the Company and the 1933
Act Defendants in the February 2011 offerings and the reasons why they were false and/or
misleading are pled at ¶¶108-111, 129 only. Each of the registration statements associated with the
- 101 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 107 of
137
February 2011 offerings were signed by defendants Smith, Allen, Ashburn, Ball, Bhappu, Cogut,
Dolan, Kristoff, Machiels, Henry and Thompson.
The June 10, 2011 Offering
273. On or about June 10, 2011, Molycorp issued 11.5 million shares of common stock at
$51.00 per share in a Secondary Offering, enabling the Insider Selling Defendants to capture at least
$586.5 million in proceeds. The June 2011 offering was also underwritten by the Underwriter
Defendants.
274. As alleged above, the June 10, 2011 Secondary Offering was made pursuant to a
Form S-1/A filed the SEC on June 7, 2007 and a Form 424B4 prospectus deemed effective by the
SEC on June 9, 2011.
275. The materially false and misleading statements made by the Company and the 1933
Act Defendants in the February 2011 and June 2011 offerings and the reasons why they were false
and/or misleading are pled at ¶¶125-130 only. Each of the registration statements associated with
the February 2011 and June 2011 offerings were signed by defendants Smith, Allen, Ashburn, Ball,
Bhappu, Cogut, Dolan, Kristoff, Machiels, Henry and Thompson.
276. The statements in the February 2011 and June 2011 offerings documents were
materially false and/or misleading when made because:
(a) Goldman Sachs sold its private investment in Molycorp prior to July 2010
because Mountain Pass lacked commercial amounts of HREEs;
(b) Prior to and throughout the Class Period, daily analysis of 20 to 30 samples of
critical solvent extraction circuits of Mountain Pass ore were performed. Each one of these analyses
- 102 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 108 of
137
confirmed there was no dysprosium or terbium in the Mountain Pass ore body and the elements
could not be produced from the Mountain pass ore body in commercially significant quantities;
(c) During the Class Period, investigations of float tests of the Mountain Pass ore
body revealed that commercially viable volumes of HREEs did not exist in the Mountain Pass;
(d) Additional analysis of the Mountain Pass ore body, which became publicly
available after the Class Period, revealed a weight to volume of 0.0% for key HREEs such as
dysprosium, terbium, europium and yttrium;
(e) An internal written report in existence as of June 2009, written by a Vice
President of Molycorp, indicated that the Mountain Pass ore body did not have commercially viable
amounts of HREEs; and
(f) Because there were no HREEs at the Mountain Pass mine, the Company could
not produce highly-valued HREEs during Phase I or Phase II of Project Phoenix.
277. The 1933 Act Defendants failed in their duty to perform reasonable due diligence that
would have alerted them to the materially false and/or misleading statements and omissions
contained in the offering documents.
278. As alleged herein, the lack of any HREEs at the Mountain Pass mine was not
previously disclosed and was material to investors because HREEs were highly-valued and a
potential source of quality revenue and earnings to the Company. Further, the 1933 Act Defendants
were under a legally imposed duty to disclose this information in the offering documents pursuant to
Regulation S-K, Item 303, because the lack of HREE clearly represented a manifested unfavorable
trend and uncertainty concerning Molycorp that would have a material impact on the Company’s
future revenue, net sales and/or net income.
- 103 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 109 of
137
279. Between November 8 and 10, 2011, news began entering the market that the
Company had not found HREEs at Mountain Pass, let alone in commercial quantities and that
Molycorp had no plan for the production of HREEs from the Mountain Pass mine during Phase I and
Phase II of Project Phoenix. As a result, investors suffered damages.
280. The allegations at ¶¶47-69, 107-112, 125-130, 276-279 form the sole basis of
plaintiffs’ 1933 Act claims against the 1933 Act Defendants.
FIRST CLAIM FOR RELIEF
For Violations of §11 of the 1933 Act in Connection with the Offering of Securities Against Defendants Molycorp, Smith, Allen, Ashburn, Ball, Bhappu, Cogut, Dolan, Kristoff,
Machiels, Henry and Thompson
281. The First Claim is brought pursuant to §11 of the 1933 Act, 15 U.S.C. §77k.
Plaintiffs Iron Workers and Salmon repeat and reallege the allegations in ¶¶47-69, 107-112, 125-
130, 276-279, as if fully set forth herein. This 1933 Act Claim is not based on any allegations of
knowing or reckless misconduct and plaintiffs Iron Workers and Salmon, for purposes of this claim,
disclaim any and all allegations of fraud.
282. This Claim is brought pursuant to §11 of the 1933 Act on behalf of the Class, against
the 1933 Act Defendants.
283. The registration statements for the February 2011 Preferred Stock IPO and June 2011
Secondary Offering of common stock were inaccurate and misleading, contained untrue statements
of material facts, omitted to state other facts necessary to make the statements made not misleading
and omitted to state material facts required to be stated therein.
284. Molycorp is the registrant for the offerings and the Insider Selling Defendants sold
common stock pursuant to the registration statement for the June 2011 Secondary Offering. The
- 104 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 110 of
137
1933 Act Defendants named herein were responsible for the contents and dissemination of offering
documents for the February and June 2011 offerings.
285. The 1933 Act Defendants are strictly liable to plaintiffs and the Class for the
misrepresentations and omissions contained in the offering documents.
286. None of the defendants named herein made a reasonable investigation or possessed
reasonable grounds for the belief that the statements contained in the offering documents were true
and without omissions of any material facts and were not misleading.
287. By reasons of the conduct herein alleged, each of the 1933 Act Defendants violated,
and/or controlled a person who violated, §11 of the 1933 Act.
288. Plaintiffs and other members of the Class purchased or otherwise acquired Molycorp
common and preferred stock issued pursuant to or traceable to the misleading offering documents.
289. Plaintiffs and the Class have sustained damages. The value of Molycorp common
and preferred stock has declined substantially subsequent to and due to the 1933 Act Defendants’
violations of the 1933 Act.
290. At the time plaintiffs and other members of the Class purchased Molycorp shares,
they were without knowledge of the facts concerning the wrongful conduct alleged herein and could
not have reasonably discovered those facts prior to September 21, 2011. Less than one year has
elapsed from the time plaintiffs discovered or reasonably would have discovered the facts upon
which this Complaint is based to the time that plaintiffs filed this pleading. Less than three years
elapsed between the time that the securities upon which this Claim is brought were offered to the
public and the time plaintiffs filed this Complaint.
- 105 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 111 of
137
SECOND CLAIM FOR RELIEF
For Violations of §12(a)(2) of the 1933 Act Against Defendants Smith, Allen, Ashburn, Ball, Bhappu, Cogut, Dolan, Kristoff, Machiels,
Henry, Thompson, Morgan Stanley, J.P. Morgan, Knight, Dahlman, Stifel, BNP, CIBC, Piper Jaffray and RBS
291. The Second Claim is brought pursuant to §12(a)(2) of the 1933 Act, 15 U.S.C. §77l.
Plaintiffs Iron Workers and Salmon repeat and reallege the allegations in ¶¶47-69, 107-112, 125-
130, 276-279, as if fully set forth herein. This 1933 Act Claim is not based on any allegations of
knowing or reckless misconduct and plaintiffs Iron Workers and Salmon, for purposes of this claim,
disclaim any and all allegations of fraud.
292. This Claim is brought pursuant to §12 of the 1933 Act against defendants Smith,
Allen, Ashburn, Ball, Bhappu, Cogut, Dolan, Kristoff, Machiels, Henry, Thompson and the
Underwriter Defendants as “sellers” as contemplated by the 1933 Act.
293. Defendants Smith, Allen, Ashburn, Ball, Bhappu, Cogut, Dolan, Kristoff, Machiels,
Henry, Thompson, Morgan Stanley, J.P. Morgan, Knight, Dahlman, Stifel, BNP, CIBC, Piper
Jaffray and RBS were sellers, offerors, and/or solicitors of sales of the common and preferred stock
offered in connection with the offerings.
294. The offering documents for the offerings were inaccurate and misleading, contained
untrue statements of material facts, omitted to state other facts necessary to make the statements
made not misleading and omitted to state material facts required to be stated therein.
295. Plaintiffs and other members of the Class purchased or otherwise acquired Molycorp
common and preferred stock issued pursuant to or traceable to the misleading offering documents.
296. By reason of the conduct herein alleged, defendants Smith, Allen, Ashburn, Ball,
Bhappu, Cogut, Dolan, Kristoff, Machiels, Henry, Thompson, Morgan Stanley, J.P. Morgan, Knight,
- 106 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 112 of
137
Dahlman, Stifel, BNP, CIBC, Piper Jaffray and RBS violated, and/or controlled a person who
violated, §12 of the 1933 Act.
297. Plaintiffs, individually and representatively, hereby elect to rescind and tender those
defendants named in this Claim those securities that plaintiffs and other members of the Class
continue to own, in return for the consideration paid for those securities together with interest
thereon. Plaintiffs and other members of the Class who have sold their Molycorp common and
preferred stock seek rescissory damages.
298. At the time plaintiffs and other members of the Class purchased Molycorp securities,
they were without knowledge of the facts concerning the wrongful conduct alleged herein and could
not have reasonably discovered those facts prior to September 21, 2011. Less than one year has
elapsed from the time plaintiffs discovered or reasonably would have discovered the facts upon
which this Complaint is based to the time that plaintiffs filed this pleading. Less than three years
elapsed between the time that the securities upon which this Count is brought and were offered to the
public and the time plaintiffs filed this Complaint.
THIRD CLAIM FOR RELIEF
Violations of §15 of the 1933 Act Against All Defendants
299. The Third Claim is brought pursuant to §15 of the 1933 Act, 15 U.S.C. §77o.
Plaintiffs Iron Workers and Salmon repeat and reallege the allegations in ¶¶47-69, 107-112, 125-
130, 276-279, as if fully set forth herein. This 1933 Act Claim is not based on any allegations of
knowing or reckless misconduct and plaintiffs Iron Workers and Salmon, for purposes of this claim,
disclaim any and all allegations of fraud.
- 107 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 113 of
137
300. This Claim is brought pursuant to §15 of the 1933 Act against each of these
defendants.
301. Each of the these defendants was a control person of Molycorp by virtue of his
position as a director and/or senior officer of Molycorp. Each of these defendants had a series of
direct and/or indirect business and/or personal relationships with the other directors and/or officers
and/or major shareholders of Molycorp.
302. Each of these defendants was a culpable participant in the violation of §11 of the
1933 Act alleged in the First Claim of Relief above, based on their having signed the registration
statements associated with the offering documents and having otherwise participated in the process
which allowed the offerings to be successfully completed.
PRAYER FOR RELIEF
WHEREFORE, plaintiffs, on behalf of themselves and the Class, pray for judgment as
follows:
A. Declaring this action to be a plaintiff class action properly maintained pursuant to
Fed. R. Civ. P. 23(a) and (b)(3);
B. Awarding plaintiffs and other members of the Class damages and recessionary
compensation together with interest thereon;
C. Awarding plaintiffs and other members of the Class their costs and expenses of this
litigation, including reasonable attorneys’ fees, expert fees and other costs and disbursements;
D. With respect to Second Claim of Relief pursuant to the 1933 Act ordering that the
offerings be rescinded; and
- 108 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 114 of
137
E. Awarding plaintiffs and other members of the Class such other and further relief as
may be just and proper under the circumstances.
JURY TRIAL DEMANDED
Plaintiffs hereby demand a jury trial on all issues triable by a jury.
DATED: July 31, 2012 ROBBINS GELLER RUDMAN & DOWD LLP
JONAH H. GOLDSTEIN TRIG R. SMITH JULIE A. KEARNS
s/ TRIG R. SMITH TRIG R. SMITH
655 West Broadway, Suite 1900 San Diego, CA 92101 Telephone: 619/231-1058 619/231-7423 (fax)
- 109 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 115 of
137
KESSLER TOPAZ MELTZER & CHECK, LLP
MICHAEL K. YARNOFF BENJAMIN J. SWEET JOHN J. GROSS MEREDITH L. LAMBERT 280 King of Prussia Road Radnor, PA 19087 Telephone: 610/667-7706 610/667-7056 (fax)
Co-Lead Counsel for Plaintiffs
DYER & BERENS LLP ROBERT J. DYER III JEFFREY A. BERENS 303 East 17th Avenue, Suite 300 Denver, CO 80203 Telephone: 303/861-1764 303/395-0393 (fax) [email protected] [email protected]
Liaison Counsel for Plaintiffs
- 110 -
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 116 of
137
CERTIFICATE OF SERVICE
I hereby certify that on July 31, 2012, I authorized the electronic filing of the foregoing with
the Clerk of the Court using the CM/ECF system which will send notification of such filing to the
e-mail addresses denoted on the attached Electronic Mail Notice List, and I hereby certify that I
caused to be mailed the foregoing document or paper via the United States Postal Service to the non-
CM/ECF participants indicated on the attached Manual Notice List.
I certify under penalty of perjury under the laws of the United States of America that the
foregoing is true and correct. Executed on July 31, 2012.
s/ TRIG R. SMITH TRIG R. SMITH
ROBBINS GELLER RUDMAN & DOWD LLP
655 West Broadway, Suite 1900 San Diego, CA 92101-3301 Telephone: 619/231-1058 619/231-7423 (fax)
E-mail: [email protected]
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 117 of
Mailing Information for a Case 1:12-cv-00292-WJM-KMT 137
Electronic Mail Notice List
The following are those who are currently on the list to receive e-mail notices for this case.
• Jeffrey Allen Berens [email protected] ,[email protected] ,[email protected]
• Travis Shenandoah Biffar [email protected] ,[email protected]
• Jonah H. Goldstein [email protected],[email protected]
• John Jay Gross [email protected],[email protected]
• Julie A. Kearns [email protected] ,[email protected]
• Gregory J. Kerwin [email protected],[email protected] ,[email protected] ,[email protected]
• Allison Kaye Kostecka [email protected] ,[email protected]
• Meredith Leigh Lambert [email protected]
• Eric Neil Landau [email protected] ,[email protected]
• Charles Walter Lilley [email protected]
• Kim Elaine Miller [email protected],[email protected]
• Rana Nader [email protected],[email protected]
• Jeffrey S. Nobel [email protected] ,[email protected]
• Nicole Susan Schram [email protected],[email protected]
• Kip Brian Shuman [email protected],[email protected]
• Benjamin James Sweet [email protected] ,[email protected]
• The Allen Group [email protected]
• Jeffrey Mark Villanueva
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 118 of
[email protected],[email protected] ,[email protected] 137
• Michael Keith Yarnoff [email protected] ,[email protected]
Manual Notice List
The following is the list of attorneys who are not on the list to receive e-mail notices for this case (who therefore require manual noticing). You may wish to use your mouse to select and copy this list into your word processing program in order to create notices or labels for these recipients.
• (No manual recipients)
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 119 of
137
CERTIFICATION OF NAMED PLAINTIFF PURJ IAN F _FEDERAL SECURI III S LAWS
IRON WORKERS MID-SOUTH PENSION FUND ("Plaintiff") declares:
1 Plaintiff has reviewed a complaint and authorized its filing
2 Plaint 111 did not acquire the security that is the subject of this action at the
direction ofplaintifPs counsel or in order to participate in this private action or any
other litigation under the ledual securities laws
3. Plaintiff is willing to serve as a representative party on behalf of the
class, including providing testimony at deposition and trial, if necessary,
4. Plaintiff has made the following transaction(s) during the Class Period in
the securities that are the subject of this action:
Transaction D a tc Price Per Share
Sec attached Schedule A.
5. Plaintiff has nol sought to serve or served as a representative party in a
class action that was tiled under the federal securities laws within the three-year
period prior to the date of this Certification except as detailed below:
6. The Plaintiff will not accept any payment for serving as a representative
party, on behalf of the class beyond the Plaintiff's pro rata share of any recovery,
I 111O!. YCOR P
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 120 of
137
except such reasonable costs and expenses (including lost wages) directly relating to
the representation of the class as ordered or approved by the court.
I declare ur penalty of perjury that ihe foregoing is true and correct.
Executed this / day of _ JLk , 2U
IRON WORKERS MID-SOUTH PENSION FUND
13 y;
MOLYCORI'
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 121 of
137
SCHEDULE A
SECURITIES TRANSACTIONS
Acquisitions
Date Type/Amount of Acqu ired
Securities Acquired
Price
02111/2011
350 00 03/08/2011
80
348,92 03/00/2011 1100
$1,48.85
03/31/2011
150
659.66 06/08/2011
115
353,06 06/08/2011
145
$52.42 06/09/201 1
860
$53.21 06/10/2011
1 205
$51 00 08/30/2011
75
$55 5/) 09/07/2011
75
$55.41 09/21/2011
2011)
$43.07 10/18/2011
20
338.43 10/18/2011
35 S3;,42 11/10/2011
245
530.45
Sales
Date
Type/Amount of Sold
Securities Sold
Price
135 320 65
85 170 60 160 160 160
5
82 60 75 40• 40
/10 75 70
20
02111/2011 04/12/2011 05/06/2011 05/13,12011 00/23/2011 06/20/2011 06/21/2011 06/21/2011 06/22/2011 06123/201 1 07/12/2011 01-1/12,1 2011 07/i 3/201 1 0714/2011 07/22/2011 07i26/201 1 07/26/201 1 07/27/201 1 07/28/2011 08/01/2011 08/02/2011 08/08/2011
$48.54 $38.64 $59.25 362 90
$53.09 353.31 354.67
/1 354 4/3 354,01 $54,75 $5269 $69.95 $63.86 $63.24 $61.36 $64.98 323.05 $59.44 351.22
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 122 of
137
Date Type/Amount of Sold
Securities Sold
Price
W08,1 2011 08/09/2011 08/12/2011 081,4 18/2011 08/22/2011 09/13/2011 09[4/2011 00115/2011 09/20/2011 10/05/2011
120 105 05 125 75 120 50 Co 35/) 40
$4630 $4958 $5975 $5150 $4598 $5230 $52 25 $51i4 $45.67 $30.75
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 123 of
137
CERTIFICATION
I, Joseph Martiny ("Plaintiff") declare, as to the claims asserted under the federal securities laws, that:
I. Plaintiff has reviewed the Complaint, and authorizes its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of
Plaintiffs counsel or in order to participate in any private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, either individually or
as part of a group, including providing testimony at deposition and trial, if necessary.
4. Plaintiffs purchase and sale transaction(s) in the Molycorp, Inc. (NYSE: MCP) security that is
the subject of this action during the Class Period is/are as follows:
Type of Security (common stock, Number of Shares Bought Sold Date Price per share
preferred, option, (B) (S) or bond)
See Attached
(Please list additional purchase and sale information on a separate sheet of paper, if necessary)
5. Plaintiff has complete authority to bring a suit to recover for investment losses on behalf of
purchasers of the subject securities described herein (including plaintiff, any co-owners, any corporations or
other entities, and/or any beneficial owners).
6. During the three years prior to the date of this Certification, Plaintiff has not sought to serve or
served as a representative party for a class in an action filed under the federal securities laws except as
described below:
7. Plaintiff will not accept any payment for serving as a representative party on behalf of the class
beyond the Plaintiffs pro rata share of any recovery, except such reasonable costs and expenses (including lost
wages) directly relating to the representation of the class as ordered or approved by the Court.
I declare under penalty of perjury that the foregoing is true and correct.
Executed this 48 day of , 2012.
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 124 of
137
SCHEDULE A
Type of Security Number of Bought Sold Date Price per share
(common stock, Shares (B) (S) preferred, option, or
bond) Common Stock 85 (B) 6/10/2011 $52.52
(Please list additional purchase and sale information on a separate sheet of paper, if necessary)
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 125 of
137
CERTIFICATION
1, Jayne McCarthy ("Plaintiff") declare, as to the claims asserted under the federal securities laws, that:
1. Plaintiff has reviewed the Complaint, and authorizes its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of
Plaintiffs counsel or in order to participate in any private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, either individually or
as part of a group, including providing testimony at deposition and trial, if necessary.
4. Plaintiffs purchase and sale transaction(s) in the Molycorp, Inc.(NYSE: MCP) security that is
the subject of this action during the Class Period is/are as follows:
Type of Security (common stock, Number of Shares Bought Sold Date Price per share
preferred, option, (B) (S) or bond)
See Attached
(Please list additional purchase and sale information on a separate sheet of paper, if necessary)
5. Plaintiff has complete authority to bring a suit to recover for investment losses on behalf of
purchasers of the subject securities described herein (including plaintiff, any co-owners, any corporations or
other entities, and/or any beneficial owners).
6. During the three years prior to the date of this Certification, Plaintiff has not sought to serve or
served as a representative party for a class in an action filed under the federal securities laws except as
described below:______________________
7. Plaintiff will not accept any payment for serving as a representative party on behalf of the class
beyond the Plaintiffs pro rata share of any recovery, except such reasonable costs and expenses (including lost
wages) directly relating to the representation of the class as ordered or approved by the Court.
I declare under penalty of perjury that the foregoing is true and correct.
Executed this J.Q day of jjk , 2012.
. ( t-4 a , if NE MCARTHY
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 126 of
137
SCHEDULE A
Type of Security Number of Bought Sold Date Price per share
(common stock, Shares (B) (S) preferred, option, or
bond) Common Stock 60 (B) 2/10/2011 $52.50 Common Stock 40 (B) 2/10/2011 $51.50 Common Stock 60 (B) 5/9/2011 $65.95
(Please list additional purchase and sale information on a separate sheet of paper, if necessary)
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 127 of
137
CERTIFICATION
I, Robert Grabowski ('Plaintiff") declare, as to the claims asserted under the federal securities laws, that:
1. Plaintiff has reviewed the Complaint, and authorizes its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of
Plaintiffs counsel or in order to participate in any private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, either individually or
as part of a group, including providing testimony at deposition and trial, if necessary.
4. Plaintiffs purchase and sale transaction(s) in the Molycorp, Inc. (NYSE: MCP) security that is
the subject of this action during the Class Period is/are as follows:
Type of Security (common stock, Number of Shares Bought Sold Date Price per share
preferred, option, (B) (S) or bond)
/00 'J7/f,
,,-"See Attached
SAW 4-r. fOC)
CôMI.' 3TcA 13 )//
lao S C16 -/7 (Please list additional uurchasc and sale information on a senarate sheet of oaier. if necessary)
5. Plaintiff has complete authority to bring a suit to recover for investment losses on behalf of
purchasers of the subject securities described herein (including plaintiff, any co-owners, any corporations or
other entities, and/or any beneficial owners).
6. During the three years prior to the date of this Certification, Plaintiff has not sought to serve or
served as a representative party for a Glass in an action filed under the federal securities laws except as
described below:____________________
7. Plaintiff will not accept any payment for serving as a representative party on behalf of the class
beyond the Plaintiffs pro rata share of any recovery, except such reasonable costs and expenses (including lost
wages) directly relating to the representation of the class as ordered or approved by the Court.
I declare under penalty of perjury that the foregoing is true and correct.
Executed this j_ day of 3i Lf , 2012.
ROERT GRABOWSKI
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 128 of
137
'3
B 14
If
5oo
5
13
50
9
o1 2— cx.-/
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 129 of
137
SCHEDULE A
Type of Security (common stock, Number of Shares Bought Sold Date Price per share
preferred, option, (B) (S) or bond)
Common Stock 100 (B) 1/7/11 $50.50
Common Stock 100 (S) 1/10/11 $55.06
Common Stock 100 (B) 1/14/11 $47.00
Common Stock 100 (S) 1/18/11 $46.19
Common Stock 200 (B) 2/11/11 $49.40
Common Stock 100 (B) 2/11/11 $48.00
Common Stock 300 (S) 3/18/11 $44.00
Common Stock 100 (B) 7/27/11 $60.50
Common Stock 100 (S) 7/28/11 $64.00
Common Stock 100 (B) 8/4/11 $55.96
Common Stock 100 (S) 8/12/11 $59.99
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 130 of
137
CERTIFICATION
I, Marjorine Dowd ("Plaintiff') declare, as to the claims asserted under the federal securities laws, that:
Plaintiff has reviewed the Complaint, and authorizes its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of
Plaintiffs counsel or in order to participate in any private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, either individually or
as part of a group, including providing testimony at deposition and trial, if necessary.
4. Plaintiffs purchase and sale transaction(s) in the Molycorp, Inc. (NYSE: MCP) security that is
the subject of this action during the Class Period is/are as follows:
Type of Security (common stock, Number of Shares Bought Sold Date Price per share
preferred, option, (B) (S) or bond)
See Attached
(Please list additional purchase and sale information on a separate sheet of paper, if necessary)
5. Plaintiff has complete authority to bring a suit to recover for investment losses on behalf of
purchasers of the subject securities described herein (including plaintiff, any co-owners, any corporations or
other entities, and/or any beneficial owners).
6. During the three years prior to the date of this Certification, Plaintiff has not sought to serve or
served as a representative party for a class in an action filed under the federal securities laws except as
described below:_______________________
7. Plaintiff will not accept any payment for serving as a representative party on behalf of the class
beyond the Plaintiff's pro rata share of any recovery, except such reasonable costs and expenses (including lost
wages) directly relating to the representation of the class as ordered or approved by the Court.
I declare under penalty of perjury that the foregoing is true and correct.
Executed this4LdaYof9..fy' 2012.
MAN,
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 131 of
137
SCHEDULE A
Type of Security Number of Bought Sold Date Price per share
(common stock, Shares (B) (S) preferred, option, or
bond) Common Stock 50 (B) 1/11/2011 $54.65 Common Stock 50 (B) 6/15/2011 $50.00 Common Stock 50 (B) 8/22/2011 $50.00 Common Stock 50 (B) 9/29/2011 $35.00
(Please list additional purchase and sale intormation on a separate sheet of paper, 11 necessary)
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 132 of
137
CERTIFICATION
I, Kyle Hare ('Plaintiff') declare, as to the claims asserted under the federal securities laws, that:
1. Plaintiff has reviewed the Complaint, and authorizes its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of
Plaintiffs counsel or in order to participate in any private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, either individually or
as part of a group, including providing testimony at deposition and trial, if necessary
4. Plaintiffs purchase and sale transaction(s) in the Molycorp, Inc. (NYSE: MCP) security that is
the subject of this action during the Class Period is/are as follows:
Type of Security (common stock, Number of Shares Bought Sold Date Price per share
preferred, option, (B) (S) or bond)
See Attached
L— i I I I — . i -- i (Please list additional purchase and sale information on a separate sheet of paper, if necessary)
5. Plaintiff has complete authority to bring a suit to recover for investment losses on behalf of
purchasers of the subject securities described herein (including plaintiff, any co-owners, any corporations or
other entities, and/or any beneficial owners).
6. During the three years prior to the date of this Certification, Plaintiff has not sought to serve or
served as a representative party for a class in an action filed under the federal securities laws except as
described below:
7. Plaintiff will not accept any payment for serving as a representative party on behalf of the class
beyond the Plaintiffs pro rata share of any recovery, except such reasonable costs and expenses (including lost
wages) directly relating to the representation of the class as ordered or approved by the Court.
I declare under penalty of perjury that the foregoing is true and correct.
Executed this j.. day of _ I , 201
KIVLE HARE
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 133 of
137
SCHEDULE A
Type of Security Number of Bought Sold Date Price per share
(common stock, Shares (B) (S) preferred, option, or
bond) Common Stock 100 (B) 6/10/2011 $52.00 Common Stock 185 (B) 6/8/2011 $53.889 Common Stock 70 (B) 6/6/2011 $58.23 Common Stock 35 (B) 6/3/2011 $62.10 Common Stock 75 (B) 5/10/2011 $67.37 Common Stock 50 (B) 5/4/2011 $70.60 Common Stock 100 (B) 5/4/2011 $73.50 Common Stock 100 (S) 6/13/2011 $47.58 1 Common Stock 390 (S) 6/8/2011 $52.37 Common Stock 125 (S) 5/17/2011 $56.7188
(Please list additional ourchase and sale information on a separate sheet of paper, if necessary)
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 134 of
137
CERTIFICATION
I, Robert Destefano, ("Plaintiff') declare, as to the claims asserted under the federal
securities laws, that:
I. Plaintiff has reviewed the Complaint, and authorizes its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the
direction of Plaintiffs counsel or in order to participate in any private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, either
individually or as part of a group, including providing testimony at deposition and trial, if
necessary.
4. Plaintiffs purchase and We transaction(s) in the Molycorp, Inc. (NYSE;
MCP) security that is the subject of this action during the Class Period is/are on the attached
Schedule A.
5. Plaintiff has complete authority to bring a suit to recover for investment losses
on behalf of purchasers of the subject securities described herein (including plaintiff, any co-
owners, any corporations or other entities, and/or any beneficial owners).
6. During the three years prior to the date of this Certification, Plaintiff has not
sought to serve or served as a representative party for a class in an action filed under the
federal securities laws except as described below: -.'' /1
7. Plaintiff will not accept any payment for serving as a representative party on
behalf of the class beyond the Plaintiffs pro rata share of any recovery, except such
reasonable costs and expenses (including lost wages) directly relating to the representation of
the class as ordered or approved by the Court.
I declare under penalty of perjury that the foregoing is true and correct.
Executed this .?7layofJAL' .2012.
~ 'R—OBERT DESTEF4NO
I
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 135 of
137
SCHEDULE A
Type of Security Number of Bought Sold Date Price per share
(common stock, Shares (B) (S) preferred, option, or
bond) Common Stock 1000 (B) 3/16/2011 $43.39 Common Stock 500 (B) 8/8/2011 $48.75 Common Stock 500 (B) 8/8/2011 $48.75 Common Stock 77 (B) 9/20/2011 $43.73
Common Stock 123 (B) 9/20/2011 $43.74 Common Stock 100 (B) 9/20/2011 $43.74 Common Stock 700 (B) 9/20/2011 $43.74 Common Stock 949 (B) 9/21/2011 $40.25 Common Stock 51 (B) 9/21/2011 $40.25 Common Stock 200 (S) 3/22/2011 $48.50 Common Stock 450 (S) 3/22/2011 $48.50 Common Stock 200 (S) 3/22/2011 $48.50 Common Stock 100 (S) 3/22/2011 $48.50 Common Stock 50 (SJ 3/22/2011 $48.50 Common Stock 300 (S) 8/9/2011 $49.96 Common Stock 700 (S) 8/9/2011 $49.96 Common Stock 1522 - (S) 3/13/2012 $32.00 Common Stock 478 (S) 3/13/2012 $32.00 Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock - Common Stock
(Please list additional purchase and information on a separate sheet of paper, if necessary)
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 136 of
137
CERTIFICATION
I, Eugene R. Salmon, ("Plaintiff ') declare, as to the claims asserted under the federal
securities laws, that:
1. Plaintiff has reviewed the Complaint, and authorizes its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the
direction of Plaintiffs counsel or in order to participate in any private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, either
individually or as part of a group, including providing testimony at deposition and trial, if
necessary.
4. Plaintiffs purchase and sale transaction(s) in the Molycorp, Inc. (NYSE:
MCP) security that is the subject of this action during the Class Period is/are on the attached
Schedule A.
5. Plaintiff has complete authority to bring a suit to recover for investment losses
on behalf of purchasers of the subject securities described herein (including plaintiff, any co-
owners, any corporations or other entities, and/or any beneficial owners).
6. During the three years prior to the date of this Certification, Plaintiff has not
sought to serve or served as a representative party for a class in an action filed under the
federal securities laws except as described below:________________________
7. Plaintiff will not accept any payment for serving as a representative party on
behalf of the class beyond the Plaintiffs pro rata share of any recovery, except such
reasonable costs and expenses (including lost wages) directly relating to the representation of
- the class as ordered or approved by the Court.
I declare under penalty of perjury that the foregoing is true and correct. -ill1
Executed this 1$ day of V , 2012.
COAC e ~ Aoail EUaJNE R. SALMON
Case 1:12-cv-00292-WJM-KMT Document 60 Filed 07/31/12 USDC Colorado Page 137 of
137
SCHEDULE A
Type of Security Number of Bought Sold Date Price per share
(common stock, Shares (B) (S) preferred, option, or
bond) Preferred Stock 100 (B) 2/25/2011 $97.00 Preferred Stock 200 (B) 3/15/2011 $86.00 Preferred Stock 100 (B) 9/12/2011 $101.89
(Please list additional purchase and sale information on a separate sheet of paper, if necessary)