August 29, 2022
A Utah judge dismissed a 2019 lawsuit filed by stockholders, but a federals appeals court has now revived some of their case.
Without any profits to promote, Pluralsight instead urged investors to watch how its billings to customers were growing, stockholders allege — as executives credited the size and productivity of their salesforce.
But after its billings slowed, the Draper-based company revealed in a July 31, 2019, filing that it had been “slower in hiring additional sales representatives than planned” to market its subscriptions to training software and online classes.
The next day, its share price dropped nearly 40% — and two large investment funds sued, arguing Pluralsight made misleading statements about its sales staff. The company denied the allegations, and a Utah federal judge later dismissed the lawsuit.
Now, the 10th U.S. Circuit of Appeals in Denver has revived some of the claims. Here is what’s still at stake, as investors return to court to try to prove their case.
How were investors allegedly misled?
In the past, Pluralsight had “about 80 quota-bearing [representatives] and little infrastructure around our sales reps,” then-Chief Financial Officer James Budge allegedly told investors at 2019 conference.
The number of “quota-bearing reps went from about 80 at that time to today we have about 250,” he explained on Jan. 16, 2019, according to the lawsuit.
Six months later, Pluralsight revealed in a Securities and Exchange Commission filing that its billings had grown by 23% in the second quarter of 2019 — a significant drop from the growth in the five previous quarters.
On an earnings call with CEO Aaron Skonnard on the same day as that filing, Budge blamed delays in hiring sales reps.
“We’re about 250 quota-bearing reps right now. And that’s about the number of bodies we wanted to have at this time in the year, but they didn’t come into the year early enough,” he said, according to the lawsuit’s transcription of the call. “…[W]e’re a few months behind there, that’s been the big impact.”
An analyst asked, “Why didn’t we hear this on last quarter’s call?” and Budge replied, “Well, we were still hitting our numbers,” referring to billings, the lawsuit alleges.
The next day, Pluralsight’s stock dropped from $30.69 to $18.56 a share, the lawsuit said.
And at the investors conference a year later, in January 2020, Budge allegedly said Pluralsight “came out of 2018 going into 2019 with about 200 quota-bearing sales reps. … We just didn’t have enough reps.”
That statement, the court said, “strongly suggests Pluralsight could not have had ‘about 250′ quota-bearing sales representatives on January 16, 2019.”
“This would have required Pluralsight to ramp up an additional 50 sales representatives in just two weeks, an unlikely scenario,” Judge Veronica Rossman wrote, “given that Pluralsight’s stated goal was to have 300 quota-bearing sales representatives by the end of the year.”
The allegations “support a reasonable belief” that Budge’s statement on Jan. 16, 2019, was false or misleading, Rossman wrote.
The ruling allows the two funds that sued to return to the trial court with that claim, and with two related claims: that Skonnard and Budge are liable under securities laws, and that they engaged in illegal insider trading.
The two groups — the Indiana Public Retirement System and Public School Teachers’ Pension and Retirement Fund of Chicago — also alleged Pluralsight, Skonnard and Budge made 17 other misleading statements.
Pluralsight had become public in 2018, and had its second offering of stock in March 2019. The two investment groups alleged those misleading statements could have inflated its stock price during the offering.
But the appellate court said the other 17 statements were either accurate “or expressions of corporate optimism that would not mislead reasonable investors.”