In Re Pivotal Securities Litigation 19-CV-03589-Consolidated Amended Class Action Complaint
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Case 3:19-cv-03589-CRB Document 75 Filed 02/11/20 Page 1 of 107 1 LABATON SUCHAROW LLP WAGSTAFFE, VON LOEWENFELDT, Carol C. Villegas (admitted pro hac vice) BUSCH & RADWICK LLP 2 Christine M. Fox (admitted pro hac vice) James M. Wagstaffe (#95535) 140 Broadway 100 Pine Street, Suite 725 3 New York, New York 10005 San Francisco, California 94111 Telephone: (212) 907-0700 Telephone: (415) 357-8900 4 Facsimile: (212) 818-0477 Facsimile: (415) 357-8910 [email protected] [email protected] 5 [email protected] Liaison Counsel for the Class 6 Counsel for Lead Plaintiffs the Oklahoma City Employee Retirement 7 System and Police Retirement System of St. Louis and Lead Counsel for the 8 Class 9 UNITED STATES DISTRICT COURT 10 NORTHERN DISTRICT OF CALIFORNIA 11 12 IN RE PIVOTAL SECURITIES LITIGATION Master File No. 3:19-cv-03589-CRB 13 CLASS ACTION 14 JURY TRIAL DEMANDED 15 CONSOLIDATED AMENDED CLASS 16 ACTION COMPLAINT 17 18 19 20 21 22 23 24 25 26 27 28 CONSOLIDATED AMENDED CLASS ACTION COMPLAINT MASTER FILE NO. 3:19-CV-03589-CRB Case 3:19-cv-03589-CRB Document 75 Filed 02/11/20 Page 2 of 107 1 TABLE OF CONTENTS 2 Page 3 I. INTRODUCTION .............................................................................................................. 1 4 II. NATURE OF THE ACTION ............................................................................................. 2 5 A. The Securities Act Claims ...................................................................................... 3 6 B. The Exchange Act Claims ...................................................................................... 5 7 C. Common Allegations Regarding the June 4, 2019 Disclosure and 8 Announcement of the Deal with VMware .............................................................. 9 9 III. COMMON ALLEGATIONS ........................................................................................... 11 10 A. Jurisdiction and Venue .......................................................................................... 11 11 B. Parties .................................................................................................................... 11 12 1. Lead Plaintiffs ........................................................................................... 11 13 2. Defendants ................................................................................................ 12 14 (a) Pivotal ........................................................................................... 12 15 (b) Executive Defendants ................................................................... 13 16 17 (c) Director Defendants ...................................................................... 14 18 (d) Underwriter Defendants ................................................................ 15 19 C. Substantive Allegations ........................................................................................ 18 20 1. Pivotal’s IPO ............................................................................................. 24 21 (a) Pre-IPO - December 2017 to mid-April 2018. .............................. 24 22 (b) Filing of Registration Statement and Prospectus .......................... 25 23 (c) Post-IPO ........................................................................................ 26 24 2. Pivotal’s Largest Shareholders ................................................................. 26 25 (a) Dell Technologies ......................................................................... 26 26 (b) General Electric ............................................................................ 27 27 (c) Ford ............................................................................................... 28 28 3. Confidential Witnesses ............................................................................. 28 CONSOLIDATED AMENDED CLASS ACTION COMPLAINT MASTER FILE NO. 3:19-CV-03589-CRB Case 3:19-cv-03589-CRB Document 75 Filed 02/11/20 Page 3 of 107 1 (a) Background of CWs ...................................................................... 28 2 (b) Competition and an Antiquated Product Offering Contributed to An Elongated Sales Cycle at Pivotal .................... 29 3 (c) Pivotal’s PKS Offering Was Late to the Kubernetes- 4 Compatible Market and Was Difficult to Sell Because of its 5 Limited Capabilities ...................................................................... 33 6 (d) Failure to Replace Lost Employees Also Negatively Affects Pivotal’s Sales Efforts ...................................................... 34 7 4. VMWare Acquires Pivotal in Late 2019 .................................................. 35 8 5. Class Action Allegations........................................................................... 37 9 6. Applicability of Presumption of Reliance: Fraud on the Market 10 Doctrine..................................................................................................... 39 11 IV. SECURITIES ACT ALLEGATIONS .............................................................................. 41 12 A. Defendants’ False and Misleading Statements and Omissions in Pivotal’s 13 Registration Statement .......................................................................................... 41 14 B. Expiration of IPO share lock-up - October 2018 .................................................. 47 15 C. Decline in Price of Pivotal Shares On June 4, 2019 Disclosure ........................... 47 16 D. Securities Act Counts ............................................................................................ 52 17 1. Count I: Violations of Section 11 of the Securities Act Against 18 Pivotal, the Director Defendants, the Executive Defendants and the Underwriter Defendants ............................................................................ 52 19 2. Count II: Violations of Section 12(a)(2) of the Securities Act 20 Against Defendant Pivotal, the Director Defendants, and the Executive Defendants ............................................................................... 54 21 22 3. Count III: Violations of Section 15 of the Securities Act Against Michael S. Dell, and the Executive Defendants ....................................... 56 23 V. EXCHANGE ACT ALLEGATIONS ............................................................................... 57 24 A. Additional Allegations from Confidential Witnesses in Support of 25 Exchange Act Claims ............................................................................................ 57 26 1. Pivotal and the Executive Defendants Had Access to Information Which Contradicted Their Statements and Omissions During the 27 Class Period .............................................................................................. 57 28 CONSOLIDATED AMENDED CLASS ACTION COMPLAINT ii MASTER FILE NO. 3:19-CV-03589-CRB Case 3:19-cv-03589-CRB Document 75 Filed 02/11/20 Page 4 of 107 1 (a) As Sales of Pivotal’s Antiquated PAS Stall, Contract Start Dates Are Modified ....................................................................... 57 2 (b) Pivotal’s Belated Focus on Kubernetes ........................................ 57 3 (c) Meetings and Reports ................................................................... 58 4 5 B. Defendants’ Materially False and Misleading Statements and Omissions During the Class Period ........................................................................................ 59 6 1. First Quarter Fiscal 2019 Results – June 12, 2018 ................................... 60 7 2. Second Quarter Fiscal 2019 Results – September 12, 2018 ..................... 65 8 3. Third Quarter Fiscal 2019 Results – December 11, 2018 ......................... 73 9 4. Citi Global TMT West Conference - January 8, 2019 .............................. 76 10 5. Fourth Quarter and Full Year Fiscal 2019 Results - March 14, 2019 ....... 79 11 12 6. Investor Meetings – March 2019 .............................................................. 86 13 C. Materialization of the Previously Concealed Risks – June 4, 2019 ...................... 87 14 D. Post-Class Period .................................................................................................. 94 15 E. Additional Scienter Allegations Against Pivotal and the Executive Defendants ............................................................................................................ 95 16 F. Loss Causation/Economic Loss ............................................................................ 97 17 18 G. No Safe Harbor ..................................................................................................... 98 19 H. Exchange Act Counts ............................................................................................ 99 20 1. Count IV: Violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder against Pivotal and the 21 Executive Defendants ............................................................................... 99 22 2. Count V: Violations of Section 20(a) of the Exchange Act against the Executive Defendants ....................................................................... 101 23 24 PRAYER FOR RELIEF ............................................................................................................. 102 25 DEMAND FOR TRIAL BY JURY ............................................................................................ 103 26 27 28 CONSOLIDATED AMENDED CLASS ACTION COMPLAINT iii MASTER FILE NO. 3:19-CV-03589-CRB Case 3:19-cv-03589-CRB