Overview
On August 22, 2024, the Honorable Susan Greenberg of the Superior Court of the State of California in and for the County of San Mateo granted final approval of a $7 million settlement in this putative securities class action, alleging that Tintri, a virtualized data storage company, made a series of misstatements and omissions in its registration statement and prospectus issued in connection with the company’s IPO on June 30, 2017, in violation of Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”).
Cohen Milstein was class counsel in this case, representing the named plaintiff, Rustam Mustafin.
Case Background
Founded in 2008, Tintri marketed and sold its VMstore products to large public and private sector customers. Within this niche market of VM-ware storage, Tintri was, by and large, successful, reporting 33% growth year-over-year and more than 1,300 customers prior to its IPO.
Plaintiffs allege that unbeknownst to investors and analysts alike that leading into the IPO Tintri implemented a new sales and marketing strategy to expand its market, allegedly requiring its sales team to misrepresent, and indeed, to oversell, the capabilities of Tintri’s product offerings.
Specifically, in May 2017, immediately prior to the IPO, management Tintri abruptly changed course, and began to require its sales force to market Tintri’s product offerings as “Enterprise Cloud Solutions” in an effort to impress Wall Street and increase interest in advance of the IPO. Tintri’s products were not, however, “Enterprise Cloud Solutions.” To be an enterprise cloud solution, a product must provide processing, storage, networking, and software, and especially what is sometimes referred to as “orchestration” software. By contrast, Tintri only provided storage products, and to a very limited extent, software (but only software relating to storage).
Forced to misrepresent Tintri’s product offerings, sales slumped. In turn, discontent grew within the sales force whose salaries were dependent, at least in part, on commissions, leading to sales team attrition and high employee turnover. Ultimately this attrition and turnover negatively impacting the sales and customer cultivation, leading to negatively impacted sales and revenue.
In the run up to the IPO, Tintri’s registration statement failed to disclose that: (a) the company had implemented a new sales strategy that required its sales force to misrepresent and oversell the capabilities of Tintri’s product offerings, or (b) the sales force was pushing back against the company’s requirements, and that discontent and disorganization within the sales force was leading to sales team attrition, and ultimately, to lower sales and revenue. Further, the registration statement affirmatively mispresented that Tintri offered “Enterprise Cloud Solutions” when it only offered Virtualization storage products and limited software programs.
After the IPO, during which time Defendants were forced to lower the offering price from the initial range 0f $10.50 to $12.50 per share to $7 per share. The truth quickly came to light as Tintri posted disappointing financial results for the second and third fiscal quarters of 2018, the two quarters immediately after the IPO. Tintri was forced to conduct a sales reorganization and massive employee layoff. In the wake of the IPO, the company’s CEO resigned, three months later the CEO’s replacement resigned, and then Tintri filed for bankruptcy.