Pegasystems will pay $35MN to resolve a shareholder lawsuit.
The lawsuit claimed Alan Trefler, CEO of Pegasystems, had assured investors that a separate lawsuit – a trade secrets case against Pega by Appian – was “without merit”.
Ultimately, the jury found in Appian’s favor – to the tune of $2BN+ – and Pega’s share price tanked, dropping 21 percent.
Two weeks later, shareholders brought about this shareholder suit, complaining that Trefler’s assurances broke the Securities Exchange Act of 1934.
The suit rumbled on for almost two years until last week – when Ken Stillwell, Chief Operating Officer & Chief Financial Officer at Pegasystems, shared an update.
“We reached an agreement to resolve that shareholder suit for $35 million,” he said during an earnings call.
We look forward to putting that distraction and the associated legal fees behind us.
Robbins Geller Rudman & Dowd LLP – the investors’ attorney – revealed that the difficulties of proving its civil securities fraud case to a jury influenced the decision.
Indeed, proving the case would involve further discovery work, dispositions, and a long, costly trial.
Moreover, the attorney suggested that investors didn’t want to wait to discover if Pega would win its appeal against the $2BN+ verdict in the Appian case.
As cited by Law360, the class counsel said:
Should Pega ultimately fail to significantly reduce or nullify the Virginia judgment, Pega’s ability to fund a judgment following a trial in this case would be severely jeopardized.
“In short, neither obtaining nor collecting on a large trial judgment was assured.”
As such, the $35MN payment from Pega – or its insurers – seemingly appeared the safest option for investors to ensure compensation.
Meanwhile, the deal enables Pega to maintain its denial that it never made any act or misstatement for which it could be considered liable under federal law.
The Latest on the Appian-Pega Lawsuit
Here is a summary of the case so far, as shared on Appian’s website:
A unanimous jury found Pega violated the Virginia Computer Crimes Act by infiltrating Appian and misappropriating Appian trade secrets. The jury and judge called Pega’s conduct “willful and malicious.”
The post continues by suggesting that Pega started “infiltrating Appian” in 2012 and continued until 2021, a year after it had filed the lawsuit.
It then accuses Pega of using multiple tactics to infiltrate Appian, such as employing “a spy with inside access to Appian.”
However, Pega always denied the accusations and told the Court of Appeals of Virginia that the decision should be reversed.
On November 15, 2023, it argued that not one of the secrets it supposedly stole from Appian legally qualified as trade secrets.
Moreover, Pega suggests that nothing from Appian was copied into its platform and that the court prevented a demo of earlier versions of its software that would demonstrate this.
Meanwhile, the CRM stalwart also claimed that Appian was “consistently misleading” in how it presented the facts in the case.
Yet, there is much more to this case, and – more than five months later – the court has yet to make a judgment.
“We are still waiting for the opinion from the Virginia appeals court,” noted Stillwell during the earnings call. “We don’t know when that court will issue [an] opinion.
But of the cases our panel of judges has heard, the majority of those cases have been decided.
That may indicate a ruling is near, and Pega will hope so, as the original $2BN+ judgment included post-judgment interest of $122MN per year – alongside $24MN for Appian’s legal bills.
