Last Friday, a Florida federal judge dismissed a securities fraud case against cloud tech company Citrix Systems, Inc. and five directors and officers of the company. Judge Raag Singhal held that the Amended Complaint “does not allege facts sufficient to form a strong inference of scienter as to any of the individual Defendants or Corporate Defendant.”
The named plaintiffs allege a class period of January 22, 2020 to October 6, 2021. The class members consist of purchasers of Citrix stock during that period. Plaintiffs allege violations of sections 10(b) and 20(a) of the Act, pertaining to “manipulative and deceptive practices” in connection with securities transactions and controlling persons liability respectively, as well as SEC Rule 10(b)-5.
As summarized in the opinion, the case concerns Citrix’s response to the changing business environment. In the past, the opinion says, Citrix sold perpetual licenses that were maintained on the local networks of customers. Over time, the industry transitioned to cloud-based subscription services, including Citrix.
“However, as soon as this transition began, Plaintiffs assert myriad problems … beset Citrix … Despite these problems, Plaintiffs allege, Defendants repeatedly assured investors the transition was proceeding according to plan…” Such assurances allegedly caused Citrix stock to trade at an artificially inflated price during the class period.
Judge Singhal provided an in-depth analysis of the allegations and applicable law in reaching his conclusion that the complaint was insufficient. The judge found that the individual defendants’ personal sales of Citrix stock was probative of those individuals’ supposedly fraudulent state of mind but found “nothing suspicious” about those sales. Judge Singhal also determined that “ … factual allegations failed to allege facts showing the Individual Defendants knew or were severely reckless in not knowing of any material misstatements or omissions because allegations regarding officer misstatements, allegations officers were involved in the company’s cloud transition, and allegations officers timely disclosed negative results all fail to raise a strong inference of scienter.”
Because the scienter allegations were insufficient as to the individuals, the judge concluded that they were also insufficient as to Citrix itself. Finally, Judge Singhal rejected in a rather summary fashion several more incidental arguments Plaintiffs made to support the sufficiency of the pleading.
Lead counsel for the Plaintiffs is Robbins Geller Rudman & Dowd LLP. Counsel for Defendants are Goodwin Procter LLP and Trenam, Kemker, Scharf, Barkin, Frye, O’Neill & Mullis, P.A.
