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An Undisclosed SEC Investigation Of TerraForm Power Was Underway Even Before SunEdison Delayed Filing Its 10-K

Our Disclosure Insight® reports, like those coming from other financial news and data providers, deliver to the investing public commentary and analysis on public company interactions with investors and with the SEC. They are journalistically based in large part on our expertise with federal filings using the Freedom of Information Act. SunEdison, Inc. – (SUNE ) TerraForm Power, Inc. – (NASDAQ: TERP ) Vivint Solar, Inc. – (NYSE: VSLR ) TerraForm Power – Confirmed, undisclosed SEC probe; added to our Watch List of Companies with Undisclosed SEC Probes Analyst Summary : This is one of those cases of who-knew-what-when and whether those who were in the know can now be trusted. At the end of Mar-2016, SunEdison disclosed both a DOJ and SEC investigation. This followed the company’s delayed 10-K filing announced at the end of Feb-2016. Yet information recently received from the SEC shows TerraForm Power, a “yieldco” of SunEdison, was already under investigation by the SEC prior to either of these two events occurring at SunEdison. To this day, the SEC investigation of TerraForm Power, which was confirmed as on-going as of 14-Mar-2016, remains undisclosed. Facts of Interest or Concern : There is recent news of DOJ and SEC investigations of SunEdison. Plus, an array of internal investigations, resignations, and delayed filings occurred at both SunEdison and TerraForm Power. We present a brief timeline of relevant disclosures and events as compared to what we have in our database. TerraForm Power and TerraForm Global (NASDAQ: GLBL ) are each known as yieldco’s of SunEdison. However, this report speaks only to SunEdison, TerraForm Power, and Vivint Solar. We’ve no research history on TerraForm Global. SunEdison and Vivint Solar: 20-Jul-2015, the two companies enter into a merger agreement. From the Probes Reporter database – SunEdison : On 03-Oct-2012, 24-Sep-2013, 19-Aug-2014, 19-Aug-2015, and most recently on 12-Jan-2016, we received information from the SEC to indicate a lack of recent investigative activity at this company (this includes when it was previously known as MEMC Electronic Materials). Each of these responses represented a two year look-back. As always, keep in mind that new SEC investigative activity could theoretically begin after the date covered by this latest information which would not be reflected here or in any of those similar instances cited below. From the Probes Reporter database – Vivint Solar: On 04-Jan-2016, we received information from the SEC to suggest the absence of recent SEC investigative activity at this company. This represented a two year look-back into SEC records on Vivint and is the only time we’ve researched this company. From the Probes Reporter database – TerraForm Power : In a letter dated 11-Feb-2016, we received information from the SEC suggesting TerraForm Power was involved in unspecified SEC investigative activity that was undisclosed at the time. This and a response below, from Mar-2016, represent the first time we have researched this company. SunEdison : On 29-Feb-2016, SunEdison announced it would delay filing its 10-K. The company blamed internal investigations that started in late 2015 (and heretofore undisclosed), which it says were based on allegations made by former executives of the company. The company said it expected to file the Form 10-K by 15-Mar-2016 SunEdison and Vivint Solar: 07-Mar-2016, SunEdison receives notice from Vivint Solar formally terminating the merger agreement of Jul-2015. From the Probes Reporter database – TerraForm Power : In a letter to us dated 14-Mar-2016, the SEC confirmed TerraForm Power’s company’s involvement in on-going enforcement proceedings that remain undisclosed as of this date. We have no other records in our library on TerraForm Power. SunEdison : Blaming material weaknesses in its internal controls, on 16-Mar-2016, SunEdison announced it would not be able to file its 10-K by the extended due date of 15-Mar-2016. SunEdison : A story published by the Wall Street Journal on 28-Mar-2016, said the SEC was investigating SUNE’s “… disclosures to investors about how much cash the solar-power company had on hand as its stock price collapsed last year … Officials in the SEC’s enforcement unit are looking into whether SunEdison overstated its liquidity last fall when it told investors it had more than $1 billion in cash,” according to the Journal’s sources. TerraForm Power: On Wednesday, 30-Mar-2016, the company issued a press release to announce Brian Wuebbels was stepping down as TerraForm Power’s president, CEO, and board member. The related 8-K was not filed until the following Monday, 04-Apr-2016. SunEdison : In an 8-K filing made on 31-Mar-2016, SunEdison said it received a subpoena from the DOJ on 28-Mar-2016. In addition SUNE said, “Also, the Company has received a nonpublic, informal inquiry from Securities and Exchange Commission (the “SEC”) covering similar areas.” The date the SEC started its informal inquiry of SUNE was not disclosed by the company. TerraForm Power: In the same 8-K which repeated the press release announcing the departure of Mr. Wuebbels, filed on 04-Apr-2016, the company also announced this concerning existing credit agreements – Fourth Amendment to Credit and Guaranty Agreement On March 30, 2016, TerraForm Power Operating, LLC, a subsidiary of the Company, entered into a fourth amendment (the “Amendment”) to its credit and guaranty agreement with Barclays Bank PLC, as Administrative Agent and Lender, the other credit parties and certain other lenders party thereto (the “Revolver”). The Amendment provides that the date on which TerraForm Power, LLC must deliver to the Administrative Agent and the other lenders party to the Revolver its financial statements and accompanying report with respect to fiscal year 2015 shall be extended to April 30, 2016. SunEdison : 14-Apr-2016, SunEdison announces completion of investigation by Audit Committee and independent directors. The company said it found no material misstatements or fraud. Notes : The SEC did not disclose the details on investigations referenced herein. All we know is that they somehow pertain to the conduct, transactions, and/or disclosures of the companies referenced. The SEC reminds us that its assertion of the law enforcement exemption should not be construed as an indication by the Commission or its staff that any violations of law have occurred with respect to any person, entity, or security. New SEC investigative activity could theoretically begin or end after the date covered by this latest information which would not be reflected here. To learn more about our research process, including how to best use this information in your own decision-making, click here . Our Terms of Service, relevant disclosures, and other legal notices can be found here . 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Clips From Abdulaziz Alnaim’s Interview With The Manual Of Ideas (Video)

Originally Published on March 21, 2016 I was recently interviewed by the wonderful publication, The Manual of Ideas , where we discussed various issues related to our strategy and to investing in general. I would like to share the following three clips from that interview with you. I hope you enjoy them. Abdulaziz Alnaim on Market Efficiency and Why Value Investing Works Abdulaziz Alnaim: We Begin by Looking for a Reason to Say ‘No’ Abdulaziz Alnaim on the Importance of Robustness

Building An IKEA Portfolio

Originally Published on March 16, 2016 If you get someone to build an IKEA sideboard – you know, one of those flat-pack conundrums that involves trying to work out what a cartoon character is doing with a hammer, a drill and forty-three assorted metal dowels – they immediately place a higher value on it than anyone else would, even if it goes on to develop an alarming 45-degree tilt. This is the IKEA effect . It’s associated, sort of, with a more general behavior that’s been known about for years – the endowment effect – in which possession of an item immediately causes us to value it more highly. Just imagine what the impact might be if you build your own portfolio, no matter how wonky it might be. Well Endowed The endowment effect was originally demonstrated in an experiment by Daniel Kahneman, Jack Knetschand Richard Thaler , who gave half of a graduate class a college-themed mug and then invited them to trade with the other half. Little trading occurred, because the valuations set by the mug-possessors far outstripped those set by the mug-less. Somehow, mere possession of a mug was enough to endow it, in the eyes of the possessors, with a value that made no sense to an outsider. In part, this looks like status quo bias – people like to stick with what they know. In combination, it’s not hard to see how these issues could cause problems in other sorts of markets. If we overvalue items of any kind – stocks, say – merely because we possess them, then we’re likely to find it difficult to sell them whatever the circumstances. Status quo bias and the endowment effect are among the culprits proposed for loss aversion, our tendency to hold onto loser stocks regardless of their underlying worth. Building Bears There are three underlying odd behaviors associated with the endowment effect. The first is the obvious one – that sellers and buyers place radically different valuations on the same thing, an effect that holds even when we adjust for negotiation strategies (i.e., put in a low bid as an anchoring point). The second is the mere ownership effect – merely owning something is enough to increase the perceived value of the object. And the third is a reluctance to trade at any price – some people simply don’t want to be parted from their belongings, no matter how tatty or valueless they appear to be to everyone else. The IKEA effect is clearly related to these effects, but there’s also something else going on. For instance, if you expend effort at Build-A-Bear to help your child with the creation of their very own growly playmate, you don’t then expect the store to reduce the price of your ursine friend because you’ve spent your time making it. In fact, you probably pay more, and do so happily, because your added input increases your estimate of the value of the critter. Justified Prior research suggests that the more effort we put into some activity the more we value the outcome – a behavior known as effort justification . So if you’re inclined to do lots and lots of research into stocks before buying, you’re likely to end up suffering from both effort justification and the endowment effect. Now, that doesn’t automatically mean your efforts aren’t worthwhile; but it would strongly suggest that the more work you put into deciding to buy a stock, the more likely it is that you’ll end up biased towards it and against alternate views. We have perhaps all met people who know every single detail of their favorite shares but completely miss the big picture; Polaroid was a great investment all the way up to the point that digital photography took off. You could analyze the company’s numbers till the end of time, but you still wouldn’t have seen the digital cliff coming. Failed Erections However, the research into the IKEA effect adds a second factor: the research suggests that the effort expended in all this work has to result in some level of success. A failed attempt to erect a chest of drawers is more likely to cause feelings of regret than an increased level of attachment. It’s hard to be happy with yourself if your furniture keeps on collapsing around you. In ” The IKEA effect: When labor leads to love ,” the researchers Michael Norton, Daniel Mochin and Dan Airely found that: “Participants saw their amateurish creations as similar in value to experts’ creations, and expected others to share their opinions. We show that labor leads to love only when labor results in successful completion of tasks; when participants built and then destroyed their creations, or failed to complete them, the IKEA effect dissipated”. Interestingly, they then go on to show that this isn’t simply an effect experienced by novices: experienced do-it-yourselfers also got caught up in the pleasure of admiring their own creations. Effort justification appears to be behind this – the more effort that people put into their successful creations, the more in love with them they became. Overvaluation Now, because the experiment used pre-packed components from IKEA, they didn’t allow for any customization. Every creation was a clone of every other creation. Yet still, participants habitually overvalued their output apparently because of the effort they’d expended in making it. If this research translates into a more general problem, then the issue for investors is starkly obvious. Overvaluing our investments simply because of the sheer amount of effort we’ve expended in figuring out that they’re worthy of our capital would trigger confirmation bias. We’re likely to miss future changes in prospects because we’re deliriously happy that all of our research efforts have resulted in a successful investment: we’re less likely to acknowledge evidence that points to the fact that things are going wrong, because we can always summon up a battery of figures to show that critics are idiots who haven’t done the necessary detailed work. Life Choices The idea that less is sometimes more, and that if you actually have to spend weeks of your life analyzing a company in order to determine whether or not to invest in it is probably an indication that you shouldn’t, is anathema to some investors. And, to be fair, people who do this for a living should expect to do this level of research and will either be successful or be culled by the invisible hand passing their money to less gullible people. But for most of us, with limited time and resources, if we have to commit so much time to analysis that we end up suffering from the endowment effect, we’re probably looking at the wrong stocks. Building an IKEA wardrobe is fine and well, but equating its value with something created by a craftsman is stupid and biased. And, more importantly, it’s a pointless waste of a life.