Pluralsight, Inc. Securities Litigation

Overview

Indiana Public Retirement System and Public School Teachers’ Pension and Retirement Fund of Chicago allege that Pluralsight, Inc., a provider of cloud-based and video training courses, skill and role assessments, learning paths, and business analytic tools, and its Chief Executive Officer (“CEO”) and Chairman, Aaron Skonnard, and Chief Financial Officer (“CFO”), James Budge, knowingly or recklessly made materially false misrepresentations and omissions about Pluralsight’s sales force and its ability to sustain strong growth in billings, and that Defendants Skonnard and Budge participated in insider trading based on this information, violating Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

Cohen Milstein serves as Lead Counsel, and Indiana Public Retirement System and Public School Teachers’ Pension and Retirement Fund of Chicago serve as Lead Plaintiffs. Parties were court-appointed on March 25, 2020.

Important Dates & Rulings

On August 2, 2024, Judge David Barlow for the U.S. District Court for the District of Utah granted Lead Plaintiffs’ unopposed motion for preliminary approval of a $20 million settlement to resolve this certified securities fraud class action.

On December 27, 2023, the court granted class certification to all persons who purchased the Class A common stock of Pluralsight from January 16, 2019 through July 31, 2019, inclusive, and were damaged thereby.

On August 23, 2022, the Tenth Circuit issued a significant opinion on scienter for shareholders, reversing the August 2, 2021 dismissal of Plaintiff’s amended complaint by the district court judge originally assigned the case, and remanding the case for further proceedings. The Tenth Circuit held:

• Lead Plaintiffs adequately alleged that Pluralsight’s CFO James Budge falsely or misleadingly stated in January 2019 that “today we have about 250” quota-bearing sales representatives, even though Pluralsight in fact only had “about 200” such representatives at that time, as Budge later admitted.
• Lead Plaintiffs’ allegations supported a strong inference of scienter. The Tenth Circuit found that there were multiple allegations sufficient to adequately allege scienter, including, among others:
• Allegations that Budge knew his January 2019 statement was false or misleading when made because Budge monitored and reported on the number of sales representatives, which was an objectively verifiable data point. In addition, the statement presented an obvious risk of misleading buyers or sellers, and Budge had a financial motive for making the misleading representation.
• Importantly, the Tenth Circuit held the existence of a 10b5-1 trading plan does “not per se rebut an inference of scienter where, as here, a defendant was allegedly motivated to misrepresent or withhold material information to affect a stock price.” The Court agreed that the “text and history of Rule 10b5-1 shows that such plans can be manipulated easily for personal financial gain and thus cannot rebut the inference that personal financial gain was a motive for Defendants’ material misrepresentations.”
• Further, the Tenth Circuit also held that Lead Plaintiffs’ allegations raised a strong inference of scienter because the CEO and CFO allegedly profited from their stock sales, sold a significant portion of their holdings, and the volumes of sales were higher than outside the class period.

The Tenth Circuit also revived Plaintiffs’ claims under Section 20A of the Exchange Act, which provides a private right of action to contemporaneous purchasers against corporate insiders who purchase or sell a security while in possession of material inside information. Finally, the Tenth Circuit also ruled that the district court relied on erroneous reasoning in dismissing Plaintiffs’ claims based on the alleged violation of Item 303 in Regulation S-K, and remanded to the district court for it to consider in the first instance “whether two months of being behind an internal sales ramp capacity plan constitutes a ‘trend’ within the meaning of Item 303.”

Case Background

Originally filed in the U.S. District Court for the Southern District of New York, and later transferred to the U.S. District Court for the District of Utah, this securities fraud class action is brought on behalf of investors who purchased or otherwise acquired Pluralsight common stock from January 16, 2019 through July 31, 2019 (the “Class Period”).

As alleged in the Second Amended Complaint, which was filed on November 4, 2022 after the Tenth Circuit’s decision, Lead Plaintiffs alleged that throughout the Class Period, Pluralsight and the named Defendants knowingly misrepresented the size of the Company’s salesforce and its ability to sustain strong growth in billings. Specifically, the Company, Skonnard, and Budge failed to disclose that Pluralsight was experiencing substantial delays in hiring and properly training the salesforce necessary to fuel its sustained growth.

In addition, the Defendants knew at the time of the March 7, 2019 Secondary Public Offering (“SPO”), which raised $456 million from investors, that Pluralsight was behind schedule onboarding new sales representatives, which was hurting the Company’s sales execution abilities and preventing Pluralsight from continuing to grow billings at its historical rate. Instead of disclosing such facts at the time of the SPO, and to cash out at inflated prices, Defendants intentionally withheld this pertinent information from investors.

In total, the material non-disclosures and false statements regarding Pluralsight’s sales force allowed Pluralsight’s three most senior officers—Defendants Skonnard and Budge, as well as Joe DiBartolomeo, Chief Revenue Officer —to sell a total of $22.2 million, $15.1 million and $9.7 million of stock, respectively, at peak prices in the seven-month Class Period through their trading plans, the SPO and open market sales.

The truth was revealed on July 31, 2019, when Pluralsight, Skonnard, and Budge announced dismal financial results for the second quarter ended June 30, 2019: specifically, that the Company’s billings growth rate had sharply deteriorated from over 40% to just 23% in the same quarter year-over-year due to “sales execution challenges.” Defendants blamed Pluralsight’s massive drop in billings growth on a shortage of sales representatives, contradicting their prior rosy statements about their salesforce. Budge admitted that the sales force lacked “ramped capacity in the first and second quarter,” and that Pluralsight “needed to bring on board dozens of reps” at the end of 2018, “so they would ramp and become fully productive in the second quarter” but that Pluralsight had been “a few months behind.” Further, he stated that it was only then that the Company had “about 250 quota-bearing reps,” later admitting in January 2020 that Pluralsight had only about 200 quota bearing sales representatives at the start of January 2019. Skonnard similarly admitted on July 31, 2019 that there had not been “enough capacity in the system to sustain our high-growth expectations as we entered the year.” At that time, Pluralsight also disclosed that its Chief Revenue Officer was leaving the Company. These disclosures shocked and troubled analysts and investors because they were fundamentally contrary to what Defendants had led investors to believe. In response to these disclosures, Pluralsight’s share price plummeted. The stock price fell $12.13 per share in a single day – a nearly 40% drop – to close at $18.56 per share on August 1, 2019, causing significant financial damages to the proposed class members.  

Indiana Public Retirement System and Public School Teachers’ Pension and Retirement Fund of Chicago, et al. v. Pluralsight, Inc., et al., Case No. 1:19-cv-00128-JNP-DBP (D. Utah)