Southern District Of New York Denies In Part Motion To Dismiss Securities Act Claims Against Technology Company For Allegedly Misleading Statements About Sales Cycle

• Published date: 09 March 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Class Actions, Trials & Appeals & Compensation, Securities
• Law Firm: Shearman & Sterling LLP
• Author: Shearman & Sterling LLP

On February 25, 2022, Judge Gregory H. Woods of the Southern District of New York granted in part and denied in part a motion to dismiss claims under Sections 11 and 15 of the Securities Act of 1933 ("the Securities Act") against a technology company ("the Company") and certain of its officers and directors. In re Tufin Software Techs. Ltd. Sec. Litig., No. 1:20-cv-05646 (S.D.N.Y. Feb. 25, 2022). Plaintiff alleged that the registration statement the Company filed in connection with its IPO "included materially misleading misstatements related to, among other things, the length of its sales cycle" and "its training practices." The Court granted defendants' motion to dismiss as to certain of the alleged statements, but denied defendants' motion to dismiss as to others, finding that plaintiff sufficiently alleged that statements regarding the length of the Company's sales cycle were "materially misleading to investors."

The Company "develops and sells cybersecurity software designed to help its customers guard against cyber-crime." The Company's software "consists of a suite of five interrelated instances of software that is intended to unify and automate its customers' policies governing the third-party cybersecurity-related products and tools." The Company released its preliminary revenue and operating loss estimates after the IPO, which were lower than prior guidance. Plaintiff filed a putative class action that was later consolidated with another action and filed an amended complaint. Defendants moved to dismiss.

As to the Company's alleged statement that its "highly trained sales force is responsible for overall market development," the Court held that plaintiff failed to allege the statement was "so false as to mislead a reasonable investor," emphasizing that plaintiff "acknowledge[d] that new hires did, in fact, receive training," and noting that "the meaning of the term 'highly' is indeterminate and too general to provide meaningful information" regarding the Company's training practices. The Court also found insufficient plaintiff's allegations regarding statements that promised "significant" time and resources would be allocated towards training salespeople and educating prospective customers, noting that plaintiff "did not allege that Defendants expended no time or resources into training or customer education."

As to statements regarding the hiring and retention of its sales personnel, the Court agreed with defendants that these statements...