Ormat could face $375m. payout in US lawsuit
Will geothermal energy company Ormat Industries Ltd. have to pay compensation of $375 million in a lawsuit brought by two former employees who claim that the company defrauded the authorities in the US, or are the claims baseless, as the company insists?
In a legal proceeding opened against the company in 2014, two former employees, Tina Calilung and Jamie Kell, alleged that Ormat committed fraudulent acts that led to it receiving grants amounting to $137m. from the US government as part of the government’s program of incentives in power production.
According to Ormat’s financial statements, in the period 2009-2014 it received grants under the US government’s American Recovery and Reinvestment Act incentive program. In 2012 alone the grants received totaled $119m.
The lawsuit is being conducted under a “qui tam” procedure under the US False Claims Act that allows people who expose corruption to sue for unlawful expenditure on behalf of the government and to receive 35 percent of the money.
Ormat, run by CEO Isaac Angel and controlled by FIMI Opportunity Funds, builds and operates geothermal power production plants. The former employees worked for the company until 2012. FIMI became part of the controlling interest in Ormat in late 2011 (Angel was appointed CEO in 2014). FIMI was originally named as a defendant in the lawsuit, but the claimants subsequently removed its name.
Calilung, who was responsible for long-term procurement at Ormat, and Kell, who was an administrator in its business development department, claimed that they had direct personal knowledge of the alleged plan to defraud the authorities and present false information in order to obtain the grants. Among other things, their claims relate to the North Brawley power plant that Ormat constructed in California in 2008, and for which it received a grant of $108m.
According to them, Ormat falsely reported to the US Department of the Treasury that the power plant began operating in 2010, whereas it was actually in operation from the end of 2008 and generated revenue of $2.5m.
It should be recalled that Ormat encountered technical difficulties with this power plant, which it reported at the time, and for which it made provisions in its 2010 financial statements because of the postponement of commercial operation. According to the claimants, Ormat also made misrepresentations about the Puna power plant in Hawaii.
In April this year, the Nevada District Court rejected applications from both sides in the case: Ormat’s application for a summary proceeding, and the claimants’ application to present a new response to the court. The judge said that there was no cause to prevent the claimants from raising their claims against Ormat, even though they had signed a settlement with the company in which they waived this right.
The legal proceeding is currently at the discovery stage which is expected to be completed by the end of this year.
Ormat commented on the matter in its first quarter report, and estimated that compensation in the case could amount to $375m. It mentioned that the US Department of Justice had refused to intervene in the legal proceeding. The company also stated that it believed it had a valid defense under law, and that it would continue to defend itself.