Case 1:19-cv-00128-JNP-DBP Document 94 Filed 06/09/20 Page 1 of 154 Keith M. Woodwell (#7353) Carol V. Gilden Joseph D. Watkins (#16979) COHEN MILSTEIN SELLERS & TOLL, PLLC CLYDE, SNOW & SESSIONS, P.C. 190 South LaSalle Street, Suite 1705 201 South Main Street, Suite 1300 Chicago, Illinois 60603 Salt Lake City, Utah 84111 Telephone: (312) 357-0370 Telephone: (801) 322-2516 Facsimile: (312) 357-0369 Facsimile: (801) 521-6280 [email protected] [email protected] [email protected] Additional Counsel on Signature Page Attorneys for Lead Plaintiffs Indiana Public Retirement System and Public School Teachers’ Pension and Retirement Fund of Chicago and the Proposed Class IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH, CENTRAL DIVISION INDIANA PUBLIC RETIREMENT SYSTEM and PUBLIC SCHOOL TEACHERS’ PENSION AND RETIREMENT FUND OF CHICAGO, Individually and on behalf of all others similarly situated, CORRECTED AMENDED COMPLAINT Plaintiffs, v. DEMAND FOR JURY TRIAL PLURALSIGHT, INC.; AARON SKONNARD; JAMES BUDGE; GARY CRITTENDEN; SCOTT DORSEY; ARNE DUNCAN; RYAN HINKLE; LEAH Case No. 1:19-cv-00128-JNP-DBP JOHNSON; TIMOTHY MAUDLIN; District Judge Jill N. Parrish FREDERICK ONION; BRAD RENCHER; Magistrate Judge Dustin B. Pead BONITA STEWART; KARENANN TERRELL; MORGAN STANLEY & CO., LLC; and J.P. MORGAN SECURITIES, LLC, Defendants. {01702892-1 } Case 1:19-cv-00128-JNP-DBP Document 94 Filed 06/09/20 Page 2 of 154 TABLE OF CONTENTS I. INTRODUCTION .............................................................................................................. 1 II. JURISDICTION AND VENUE ....................................................................................... 11 III. PARTIES .......................................................................................................................... 12 A. Lead Plaintiffs ....................................................................................................... 12 B. Exchange Act Defendants ..................................................................................... 13 1. Corporate Defendant Pluralsight............................................................... 13 2. The Officer Defendants............................................................................. 14 3. Relevant Executive Officer ....................................................................... 17 C. Securities Act Defendants ..................................................................................... 18 1. Corporate Defendant ................................................................................. 18 2. Signer Defendants ..................................................................................... 18 3. Underwriter Defendants ............................................................................ 21 IV. EXCHANGE ACT ALLEGATIONS ............................................................................... 22 A. Factual Allegations ............................................................................................... 22 1. From Its Inception as a Public Company, Pluralsight Was Unable to Report Profitability, So Instead It Repeatedly Touted Dramatic “Billings Growth” ..................................................................................... 22 2. Pluralsight Repeatedly Told Investors Its Sales Force Was The Lynchpin Of Its Dramatic Billings Growth, Sparking Intense Investor Interest in its Sales Force ............................................................ 25 3. During the Class Period, Defendants Made Misleading Positive Statements Regarding Pluralsight’s Sales Force and Omitted That Sales Representative Capacity and Infrastructure Were Woefully Insufficient to Sustain Billings Growth .................................................... 30 4. On July 31, 2019, Defendants Admitted the Shocking Truth That Deficiencies Had Existed in the Sales Force Since the Beginning of 2019 and Caused Dramatic Decline in Billings Growth ........................... 44 5. The Market Was Blindsided by the Disclosure of an Insufficient Sales Force and the Admission that this Fact Was Known but Not Disclosed During the Class Period ........................................................... 49 B. Scienter Allegations .............................................................................................. 52 1. Defendants’ Scienter is Reflected in The Officer Defendants’ Admissions That Since January 2019, They Had Known That Pluralsight Had Too Few Ramped Sales Representatives ........................ 53 2. Defendants’ Scienter is Further Demonstrated By Highly Suspicious Insider Trading during the Class Period ................................. 54 {01702892-1 } i Case 1:19-cv-00128-JNP-DBP Document 94 Filed 06/09/20 Page 3 of 154 3. Defendants’ Scienter Is Further Demonstrated By The Officer Defendants’ Admissions That They Focused on the Precise Issues That They Did Not Disclose ..................................................................... 65 4. Defendants’ Scienter Is Evidenced By the Officer Defendants’ Knowledge that the Status of Pluralsight’s Sales Capacity Was Vital to its Investors and its Stock Price ................................................... 68 5. Defendants’ Scienter is Demonstrated By Their Prior Admissions That the Capacity of the Sales Force to Generate Billings Was at the Core of Pluralsight’s Business Model ................................................. 69 C. Defendants’ Materially False and Misleading Statements and Omissions of Material Facts........................................................................................................ 70 1. January 16, 2019 Pluralsight at Needham Growth Conference ................ 70 2. February 13, 2019 Earnings Announcement ............................................ 73 3. February 21, 2019 10-K ............................................................................ 75 4. March 4-7, 2019 SPO Offering Documents ............................................. 82 5. May 1, 2019 Earnings Announcement...................................................... 85 D. Defendants Violated Items 303 and 105 of Regulation S-K By Failing to Disclose Unfavorable Known Trends or Uncertainties ........................................ 92 E. Loss Causation ...................................................................................................... 96 F. Presumption of Reliance ....................................................................................... 99 G. Inapplicability of The Statutory Safe Harbor ...................................................... 100 H. Claims for Relief Under The Exchange Act ....................................................... 101 COUNT I .................................................................................................................................... 101 COUNT II ................................................................................................................................... 103 COUNT III .................................................................................................................................. 104 V. SECURITIES ACT ALLEGATIONS ............................................................................ 105 A. Background Facts................................................................................................ 106 1. Prior to the SPO, Unable to Demonstrate Profits, Pluralsight Focused Investors on Its Billings Growth ............................................... 107 2. Billings Growth Was Dependent on the Sales Force .............................. 108 3. In August 2018, Budge told Analysts and Investors That the Company’s Investment In Its Growing Sales Force Was Generating Efficiencies ........................................................................... 110 4. On Their October 24, 2018 Earnings Call, Skonnard and Budge Told Investors that the Sales Force Was Well-Ramped and Executing at “Scale” Heading Into 2019 ................................................ 112 5. At a January 16, 2019 Conference, Budge Told Investors that the Sales Force Was “Killing It” and the Sales Infrastructure was “At Scale” ...................................................................................................... 113 {01702892-1 } ii Case 1:19-cv-00128-JNP-DBP Document 94 Filed 06/09/20 Page 4 of 154 6. Just Prior to the SPO, in February 2019, Pluralsight and Budge Continued to Emphasize the Sales Force’s Growth, Productivity, Efficiency, and Effectiveness .................................................................. 114 B. At the Time of the SPO, Undisclosed Adverse Facts Showed that Pluralsight Was Months Behind On Its Plan For Hiring and Ramping Sales Representatives .......................................................................................... 115 C. The SPO Offering Documents Contained Material Misstatements and Omitted Material Facts ....................................................................................... 116 1. The Offering Documents’ Statements about an Expanded Sales Force Having Increased Effectiveness and Productivity Were Materially False and Misleading, and Contained Material Omissions ................................................................................................ 118 2. The Offering Documents’ “Risk Factors” Supposed Warnings of Possible Adverse Conditions Contained Material Omissions and Misstatements of Fact ............................................................................