Court Denies Motion to Dismiss Securities Fraud Class-Action Lawsuit Against Zuora (ZUO) and its Executives
SAN FRANCISCO - Yesterday, a federal judge’s opinion greenlighted a securities fraud class-action against subscription software provider Zuora, Inc. (NYSE: ZUO), for misrepresentations about its flagship products, Billing and RevPro, according to attorneys at Hagens Berman. The case also names Zuora‘s chief executive officer and chief financial officer as defendants.
Hon. Susan Y. Illston, U.S. District Judge for the Northern District of California denied in its entirety the Zuora defendants’ motion to dismiss the case. The opinion held that investors sufficiently pled that defendants had violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The Zuora defendants must now file a formal answer with the court, admitting or denying each of the complaint’s allegations.
The order paves the way for the suit’s class members – investors who purchased Zuora securities between Apr. 12, 2018 and May 30, 2019, inclusive – to pursue discovery, including the production of documents and testimony from Zuora and other relevant parties.
In the detailed 21-page opinion, Judge Illston overruled all of defendants’ challenges to investors’ claims. Specifically, the court rejected their argument that their statements were puffery, finding that the complaint has adequately alleged defendants’ statements, “would give a reasonable investor the ‘impression of a state of affairs that differs in a material way from the one that actually exists.’”
The court also rebuffed defendants’ assertion that the complaint did not adequately plead scienter (intent or knowledge of wrongdoing), given the highly detailed accounts of confidential witnesses establishing, “that defendants were in possession of contemporaneous, contradictory information when they made the false and misleading statements.”
Hagens Berman was named lead counsel in the case by Judge Illston, with Steve Berman, managing partner and co-founder of firm, serving as the lead trial counsel.
“We are pleased with the court’s decision, which upholds the well-established law that companies mislead investors when they tout their products’ capabilities, but fail to disclose significant flaws that undercut those capabilities,” Berman said. “This ruling also allows us to begin obtaining discovery and prepare for trial, so we can hold defendants accountable for the significant losses they caused investors.”
The lawsuit alleges that throughout the class period, defendant represented Zuora Central acted as an intelligent subscription management hub that automated, integrated and orchestrated the entire subscription order-to-cash process, including billing through Zuora Billing, and revenue recognition through Zuora RevPro.
According to the complaint, defendants concealed the existence of significant technical challenges that prevented the successful integration of Zuora’s two core products, ultimately resulting in reduced revenue growth, missed sales and waning demand for Zuora’s platform and applications.
The truth emerged on May 30, 2019, when defendants disclosed the integration failure, sales execution issues and disappointing financial performance and outlook. On this news, Zuora’s share price plummeted 30 percent, erasing nearly $520 million in market capitalization in a single trading day.
If you have information regarding Zuora’s alleged fraud, Hagens Berman wants to hear from you. Individuals with non-public information regarding Zuora are encouraged to contact the firm by emailing [email protected] or by calling 510-725-3040.
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About Hagens Berman
Hagens Berman Sobol Shapiro LLP is a consumer-rights class-action law firm with nine offices across the country. The firm’s tenacious drive for plaintiffs’ rights has earned it numerous national accolades, awards and titles of “Most Feared Plaintiff’s Firm,” and MVPs and Trailblazers of class-action law. More about the law firm and its successes can be found at www.hbsslaw.com. Follow the firm for updates and news at @ClassActionLaw.