Pegasystems Inc. (“PEGA”) develops customer relationship management software. In its SEC filings during the Class Period, PEGA consistently informed investors that its internal “research and development organization is responsible for product architecture, core technology development, product testing, and quality assurance.” The Company also stated that it maintained a written Code of Conduct applicable to its board of directors and all employees “including our principal executive officer,” which included an express commitment: “Never [to] use illegal or questionable means to acquire a competitor’s trade secrets or other confidential information, such as . . . stealing, seeking confidential information from a new employee who recently worked for a competitor, or misrepresenting your identity in hopes of obtaining confidential information.”
On May 29, 2020, Appian Corporation (“Appian”), a principal competitor of PEGA, filed a civil complaint in the Circuit Court for Fairfax County, Virginia against PEGA and an employee of a government contractor using Appian software, alleging claims for trade secret misappropriation, violation of the Virginia Computer Crimes Act, tortious interference, and statutory business and common law conspiracy (the “Appian Litigation”). The Appian complaint alleged efforts by PEGA to obtain Appian trade secrets through the contractor’s employee, who had access to Appian’s software and materials. The complaint further alleged that PEGA’s own employees, including its Chief Executive Officer (“CEO”), misrepresented themselves as potential customers of Appian partners to improperly gain access to Appian’s trial software.
The Class Action alleges that, during the Class Period, Defendants misrepresented and/or failed to disclose that: (1) PEGA had engaged in corporate espionage and misappropriation of trade secrets to better compete against Appian; (2) Defendants’ product development and associated success was, in significant part, not the result of its own research and product testing but rather the result of such corporate espionage and trade secret theft; (3) Defendants had engaged in a scheme to steal Appian trade secrets, which was not only known to, but carried out through the personal involvement of PEGA’s CEO; (4) PEGA’s CEO and other officers and employees did not comply with PEGA’s written Code of Conduct; (5) PEGA was “unable to reasonably estimate damages” in the Appian Litigation; and (6) as a result of the foregoing, Defendants’ statements about PEGA’s business, operations, prospects, legal compliance, and potential damages exposure in the Appian Litigation were materially false and/or misleading and/or lacked a reasonable basis when made.
The truth regarding PEGA’s fraudulent conduct was revealed after the close of the markets on May 9, 2022, when PEGA issued a press release announcing that the jury in the Appian Litigation had awarded Appian more than $2 billion for PEGA’s misappropriation of trade secrets. In response to this news, PEGA’s stock price fell 21%, from a closing price of $65.93 per share on May 9, 2022, to a closing price of $52.25 on May 10, 2022. As the market continued to digest the verdict, PEGA’s stock price dropped another 8% to close at $48.07 per share the following day.