A securities class action has been filed has been filed in the USDC – E.D.VA against Pegasystems Inc. (PEGA) on behalf of all persons or entities that purchased PEGA common stock between May 29, 2020 through May 9, 2022.
PEGA develops customer relationship management software. In its SEC filings during the Class Period, PEGA consistently informed investors that its internal “research and development organization is responsible for product architecture, core technology development, product testing, and quality assurance.” The Company also stated that it maintained a written Code of Conduct applicable to its board of directors and all employees “including our principal executive officer,” which included an express commitment: “Never [to] use illegal or questionable means to acquire a competitor’s trade secrets or other confidential information, such as . . . stealing, seeking confidential information from a new employee who recently worked for a competitor, or misrepresenting your identity in hopes of obtaining confidential information.”
On May 29, 2020, Appian Corporation (“Appian”), a principal competitor of PEGA, filed a civil complaint in the Circuit Court for Fairfax County, Virginia against PEGA and an employee of a government contractor using Appian software, alleging claims for trade secret misappropriation, violation of the Virginia Computer Crimes Act, tortious interference, and statutory business and common law conspiracy (the “Appian Litigation”). The Appian complaint alleged efforts by PEGA to obtain Appian trade secrets through the contractor’s employee, who had access to Appian’s software and materials. The complaint further alleged that PEGA’s own employees, including its Chief Executive Officer (“CEO”), misrepresented themselves as potential customers of Appian partners to improperly gain access to Appian’s trial software.
Despite the obvious materiality of the Appian Litigation, including its allegation that PEGA had essentially stolen Appian’s trade secrets and caused Appian massive damages, in violation of SEC reporting regulations, for nearly two full years during the Class Period Defendants never disclosed or described the Appian Litigation in its quarterly reports on Form 10-Q or annual reports on Form 10-K. When they did finally discuss the Appian Litigation, Defendants falsely assured investors that the claims asserted in the litigation were “without merit,” PEGA faced no exposure in the litigation because Appian’s alleged damages “are not supported by the necessary legal standard of proximate cause,” and, even if PEGA was found liable, it was “unable to reasonably estimate possible damages.”
The Complaint alleges that the Defendants made statements that were materially false and/or misleading and failed to disclose material adverse facts about the Company’s business, operations, and prospects, which were known to Defendants or recklessly disregarded by them. Specifically, Defendants misrepresented and/or failed to disclose that:
- the Company had engaged in corporate espionage and misappropriation of trade secrets to better compete against Appian, a principal competitor;
- Defendants’ product development and associated success was, in significant part, not the result of its own research and product testing but rather the result of such corporate espionage and trade secret theft;
- Defendants had engaged in a scheme to steal Appian trade secrets, which was not only known to, but carried out through, the personal involvement of the Company’s CEO;
- the Company’s CEO and other officers and employees did not comply with the Company’s written Code of Conduct, including its express prohibition on “stealing” confidential information from a competitor and “misrepresenting your identity in hopes of obtaining confidential information”;
- the Company was “unable to reasonably estimate damages” in the Appian Litigation; and
- as a result of the foregoing, Defendants’ statements about the Company’s business, operations, prospects, legal compliance, and potential damages exposure in the Appian Litigation were materially false and/or misleading and/or lacked a reasonable basis when made.
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