On October 2, 2017, Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California dismissed with prejudice a putative securities fraud class action against Nimble Storage, Inc. (“Nimble”), a flash storage technology company, and several of its officers. In re. Nimble Storage Secs. Litig., No. 15-cv-05803 (N.D. Cal., Oct. 2, 2017). Plaintiffs alleged that Defendants misrepresented Nimble’s prospects and financial condition in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Court found that Nimble’s statements about growth were not misleading because they were accompanied by sales and profit data, which accurately reported the company’s condition to the public.
Plaintiffs alleged that Defendants misled the public by (i) failing to inform investors that Nimble’s commercial segment was weakening, (ii) representing that Nimble’s enterprise segment was growing while misleadingly reclassifying commercial clients as enterprise clients; and (iii) informing the public that Nimble remained on-track to “breakeven,” despite knowing that Nimble’s commercial and enterprise segments were struggling. The Court previously granted two earlier motions to dismiss, but allowed Plaintiffs to amend the complaint to the extent that they could adequately plead that Defendants’ reclassifications of certain clients were fraudulent and that such fraudulent reclassifications were disclosed to the public.
In dismissing Plaintiffs’ third amended complaint with prejudice, the Court held that Defendants’ general statements in quarterly reports concerning the strength of Nimble’s enterprise segment were neither false nor misleading. The Court found that the general statements of growth were not actionable because they were accompanied by accurate sales and market data that Defendants disclosed to the public about the enterprise segment’s strength. This data included the actual numbers of enterprise clients that Nimble had acquired. The Court noted that such sales and profit data, when reported accurately, are “rarely subject to misinterpretation, even if the disclosure is accompanied by generally optimistic statements about the future by corporate officers.”
The Court rejected Plaintiffs’ reliance on statements from confidential witnesses that Nimble reclassified its top commercial accounts as enterprise accounts and announced these reclassifications to the public as a “win” when Defendants knew that Nimble would miss quarterly forecasts. It found that statements by confidential witnesses lacked the specificity needed to determine whether the company’s statements were false and misleading when they were made. Finally, the Court observed that Plaintiffs failed to allege that the “highly predictive technology” used by Nimble to forecast results actually forecasted that Nimble would miss its targets, explaining that, to support plaintiff’s theory, the Court would have to “make inference upon inference without any particularized facts demonstrating what information the reports actually contained.”
This case provides a useful example of how the disclosure of actual sales and profit figures can be used by a company to rebut allegations that it made false and misleading statements about the status of its business.
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