Shareholders File Opposition to Zoom’s Motion to Dismiss Securities Fraud Suit

Shareholders opposed the motion to dismiss filed by Zoom Video Communications, Inc. in the Northern District of California on Friday. The shareholders alleged that Zoom committed securities fraud by lying about the security of their user’s data.

At the start of the COVID-19 pandemic, the opposition explained, Zoom rose to the forefront as a leader of video conferencing applications, and consumers bought their stock anticipating a large return on investment. Zoom claimed that they “are proud to exceed industry standards when it comes to your organizations communications” and that they could “secure a meeting with E2E (end to end) encryption.”

However, the plaintiffs alleged that “Zoom did not and could not enable end-to-end encryption and was ultimately forced to apologize for misleading the public,” and that Zoom was collecting user personal data and sharing it with Facebook, even if they did not have Facebook accounts. These revelations caused Zoom’s stock price to plummet.

The plaintiffs argued that their complaints are material due to Zoom’s admission of having access to the necessary encryption key, and pointed out that the FTC is currently suing them since Zoom “falsely represented the security of its videoconferencing and usage of 256-bit encryption.” Moreover, Zoom “knew or deliberately disregarded” that their statements regarding security and encryption were “materially false and misleading.” The plaintiffs also pleaded scienter, noting that the FTC’s suit corroborated this information. Zoom also admitted in a blog post on March 30th, 2020 that they were “collecting and sharing user data with Facebook,” which prompted an investigation by the New York Attorney General; thus, the plaintiffs are showing alleged loss causation.

The plaintiffs are asking the court to deny Zoom’s motion to dismiss and are requesting leave to amend their complaint.

Zoom is represented by Cooley LLP. The plaintiffs are represented by Robbins Geller Rudman & Dowd LLP.