Reed Smith Client Alerts

In Jacob v. Bloom Energy Corp.,1 the Delaware Court of Chancery granted a stockholder (Jacob) the right to inspect limited documents of Bloom Energy Corporation (Bloom or the Company) for the purpose of investigating misrepresentations in Bloom’s financial statements and the performance of its clean and sustainable energy technology. The inspection demand drew heavily from a thoroughly researched report published by a short seller, Hindenburg Research (the Hindenburg Report), which concluded that “Bloom’s technology is not sustainable, clean, green, or remotely profitable.” The court allowed inspection of board materials and electronic communications related to four separate categories, but denied inspection of emails and other electronic communications between board members. The court denied, however, the demand of a second stockholder (Bolouri), because the court found that Bolouri failed to properly demonstrate his beneficial ownership in the Company. This opinion demonstrates the precision with which the Court of Chancery will decide books-and-records demands.


In September 2019, Hindenburg Research, an investment research firm with a focus on activist short-selling, published the Hindenburg Report, which documented an investigation into potential misrepresentations by Bloom. The Hindenburg Report concluded that:

(1) Bloom’s debt had reached ‘unsustainable levels’; (2) Bloom used deceptive accounting practices to hide servicing liabilities in its Master Servicing Agreements (MSAs); (3) Bloom inaccurately estimated the life of its fuel cells; (4) Bloom booked substantial write-downs in the pre-IPO period (where investors could not see the write-downs) while booking new revenue that improved the financials disclosed publicly in the IPO; and (5) Bloom was not a ‘clean’ energy company, placing the government subsidies it had garnered on that account in jeopardy.

In response to the Hindenburg Report, Bloom filed a Form 8-K with the Securities and Exchange Commission stating that certain previously issued financial statements were inaccurate because of an accounting error in connection with the MSAs. Bloom also advised it would revise how it accounts for certain revenues.

Following the Hindenburg Report and Bloom’s Form 8-K, Jacob and Bolouri each served separate demands for inspection of books-and-records on the Company. Each of the demands identified four categories of Bloom’s documents and stated that the purpose of those demands was:

(i) to investigate potential wrongdoing, mismanagement and breaches of fiduciary duties by management and the board of directors in connection with the circumstances described by the Hindenburg Report; (ii) to assess the ability of the board of directors to impartially consider a demand for action; (iii) to seek an audience with the board of directors to discuss potential reforms; and (iv) to take appropriate action in the event management and the board of directors did not properly discharge its duties.

The Company rejected those demands and both Jacob and Bolouri jointly filed an action under section 220 of the Delaware General Corporation Law (DGCL).