After four years of hard-fought litigation, lead plaintiffs in a certified class action against Pluralsight, Inc. and two of its executives have filed for preliminary approval of a $20 million settlement. Cohen Milstein serves as court-appointed lead counsel in the case, representing lead plaintiffs Indiana Public Retirement System and Public School Teachers’ Pension and Retirement Fund of Chicago. The substantial settlement is a significant victory for lead plaintiffs and the class of investors, who overcame an initial order dismissing the case by successfully appealing to the Tenth Circuit, resulting in a landmark opinion on the application of scienter to Rule 10b5-1 trading plans.

In March 2020, the Court appointed lead plaintiffs to lead the case, which was originally filed in August 2019. Filing an amended complaint three months later, lead plaintiffs alleged that defendants misrepresented the size of the company’s sales force—the main driver of Pluralsight’s quarter-over-quarter billings growth and the key business metric by which Pluralsight attracted investors. The complaint also alleged that the company and its CEO and CFO knew that Pluralsight misrepresented the size of the sales force,intentionally withheld this pertinent information from investors, and reaped millions of dollars in profits by selling stock to unsuspecting investors.

Just over a year later, in August 2021, the U.S. District Court for the District of Utah dismissed the amended complaint, finding, among other things, that Pluralsight’s use of predetermined stock trading plans (established in 2000 by the Securities and Exchange Commission in Rule 10b5-1) automatically removed defendants’ motive to manipulate the company’s stock price. Lead plaintiffs appealed the case to the Tenth Circuit, presenting an emerging issue of first impression.

In the closely watched appeal, an amici curiae brief was filed by former SEC Commissioners Robert J. Jackson and Luis A. Aguilar, former SEC Chief Accountant Lynn Turner and Columbia Law Professor Joshua Mitts, along with other prominent academics, who urged reversal, explaining that the “text and history of Rule 10b5-1 shows that such plans can be manipulated easily for personal financial gain and thus cannot rebut the inference that personal financial gain was a motive for defendants’ material misrepresentations.”

In its August 23, 2022 opinion reversing the district court’s dismissal, the Tenth Circuit held, among other things, that the existence of a 10b5-1 trading plan does “not per se rebut an inference of scienter where … a defendant was allegedly motivated to misrepresent or withhold material information to affect a stock price.” In its ruling, the Tenth Circuit explained that these plans do not prevent officers from “making false statements to artificially inflate the stock price to trigger those automatic trades—and that is what Plaintiffs allege occurred here.”

Apart from its important scienter ruling, the Tenth Circuit also held that lead plaintiffs plausibly alleged that defendants made a false and misleading statement at the start of the class period, when Pluralsight’s Chief Financial Officer, James Budge, told investors that the company had “about 250” quota-bearing sales representatives. As the Tenth Circuit recognized, the complaint alleged that defendants later revealed that Pluralsight only had “about 200” quota-bearing sales representatives at the time, which strongly suggested that Budge’s statement was “objectively verifiable” and false. The complaint alleged that the truth was revealed six months later, when the Company reported that its billings growth had plummeted, stunning analysts and investors alike, and causing the stock price to plunge by nearly 40 percent.

While the Tenth Circuit’s decision was a significant and positive ruling for all investors, the ruling also limited the scope of the case to Budge’s single statement. Lead plaintiffs faced significant obstacles in their attempt to hold defendants liable for this statement, which was both false and misleading by omission. But after the Tenth Circuit’s reversal, lead plaintiffs continued to vigorously litigate the action, successfully moving for class certification, a motion the district court granted in late December 2023.

In early February 2024, the District Court granted lead plaintiffs’ motion to compel regarding the discovery period for the case, a critical ruling that significantly expanded the scope of discovery. About a month later, lead plaintiffs and defendants reached a settlement.

This case demonstrates the importance of institutional investors leading litigation, pressing forward on appeal, and having the ability to marshal support from leading experts on the stock market and federal securities laws, who submitted an amici brief to the Tenth Circuit. Lead plaintiffs’ advocacy resulted in helpful law and a significant recovery for the class.

Richard E. Lorant

A federal judge in Utah has certified a class of Pluralsight, Inc. investors seeking damages after Pluralsight stock dropped 40% when executives allegedly admitted they had exaggerated the size of the sales force key to the company’s continued growth.

In a December 27 memorandum decision and order granting class certification, U.S. District Judge David Barlow designated lead counsel Cohen Milstein as class counsel and its clients— lead plaintiffs Indiana Public Retirement System and Public School Teachers’ Pension and Retirement Fund of Chicago—as class representatives.

“We are very pleased with this detailed and well-reasoned opinion,” said Carol V. Gilden, the Chicago-based partner leading Cohen Milstein’s litigation team. “With the class certified, we can focus on marshaling the evidence we are collecting through the discovery process to secure the best possible resolution for our clients and the class.”

Headquartered in Utah, Pluralsight provides cloud-based and video training courses, skill and role assessments, learning paths, and analytics tools to businesses. Plaintiffs allege that the company and two top executives violated securities laws by making materially false misrepresentations and omissions about Pluralsight’s sales force and its ability to sustain strong growth in billings.

The complaint further accuses the executives, Aaron Skonnard, the CEO and Chairman, and James Budge, the chief financial officer, of violating securities laws by trading stock based on their inside knowledge. In all, plaintiffs allege that Pluralsight’s top three executives sold $47 million in stock during the class period, which runs from January 16, 2019, through July 31, 2019, including through their 10b5-1 trading plans.

In his opinion, Judge Barlow found that plaintiffs satisfied the requirements to pursue a class action under Federal Rule of Civil Procedure 23(a). Under the rule, the class must be large enough to make it impractical to pursue claims as individuals; the class members must share common “questions of law or fact;” and the class representatives must have “claims or defenses” typical of those of the class at large and “fairly and adequately” protect the interests of the class.

In appointing class counsel, the judge found that “Cohen Milstein will fairly and adequately represent the class’s interests.” He based his decision on the firm’s prosecution of the lawsuit since its March 2020 lead counsel appointment, its experience as class counsel in other cases, and its significant resources.

Indeed, it took plenty of perseverance and skill to even reach the class certification stage. Filed in New York, the proceedings were transferred to the District of Utah where, in March 2021, the judge who was first assigned to the case dismissed plaintiffs’ amended complaint. More than a year later, in August 2022, the Tenth Circuit Court of Appeals reversed the lower court’s dismissal on plaintiffs’ main claims. Following their successful argument to the appeals court, lead plaintiffs filed their second amended complaint in November 2022 and followed with their motion to certify the class in March 2023.

The case is Indiana Public Retirement System, et al. v. Pluralsight, Inc. et al., 19-cv-00128- DBB-DAO (D. Utah).

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