Reed Smith Client Alerts

A new decision from a Massachusetts federal district court raises the possibility that companies could face federal securities fraud liability for falsely stating that a lawsuit is “without merit” in SEC filings when executives knew otherwise.

Background. Public companies routinely disclose information about threatened or ongoing litigation in investor materials and Securities and Exchange Commission filings. Those disclosures often include the status of lawsuits as well as boilerplate statements that the company disputes the allegations. But a new decision in the United States district court for the district of Massachusetts is a stark reminder that companies should issue these statements with caution and attention to accuracy.

The case, City of Fort Lauderdale Police & Firefighters’ Retirement System v. Pegasystems Inc., No. 22-11220-WGY (D. Mass. July 24, 2023), stems from a different lawsuit in Virginia state court, in which a jury found Pegasystems Inc. (Pega) liable for willfully and maliciously misappropriating trade secrets from another company, Appian Corp. Pega was ordered to pay more than $2 billion in damages.

The Virginia case concerned a yearslong effort by Pega and its executives to misappropriate trade secrets from its competitor, Appian, and to use those secrets to improve its own products. That effort allegedly included a meeting with a Pega’s CEO Alan Trefler (later named as a defendant in the securities case), during which the CEO was shown “how to use Appian’s platform” and was given answers to “detailed technical questions about Appian’s software.” The CEO allegedly directed an effort to spy on Appian, including having Pega employees pose as Appian customers to gather information. Pega allegedly knew these activities were illicit – another executive referred to Pega’s use of “spies” and asked employees to keep the activities “STRICTLY INTERNAL.” Pega also allegedly paid cash bonuses to employees who participated in the conspiracy.