‘Unpersuasive’ Isn’t ‘False,’ Judge Rules

DENVER (CN) - A federal judge dismissed an investor's class action accusing a computer security firm of lying about preventing a Russian hacking group's attack, to bolster its flagging stock price.

Chief U.S. District Judge Marcia Krieger granted Root9B Technologies' motion to dismiss on Sept. 21, finding that plaintiff David Hampton failed to prove that Root9B's press release, claiming to have discovered a Russian hacking group's plan to target large banks, was fabricated.

Hampton cited an article by cyber-journalist Brian Krebs, who wrote that Root9B had simply rediscovered a Nigerian phishing scam that had been well known for years.

Krieger found that the Krebs article cast doubt on Root9B's claims, but did not disprove them.

"Beyond pointing out an alternative, perhaps more persuasive explanation, the Krebs article merely accuses Root of sloppy detective work or of prematurely jumping to a conclusion about the identity of the culprit," Krieger wrote in the 13-page opinion and order.

"Neither the article nor Mr. Hampton suggest that the true identity of the hackers became or ever will become known, or that the computer security community ever settled on a generally accepted conclusion as to the matter. Thus, the question of whether the hackers were Russians, Nigerians, both, or neither remains an unsolved mystery."

Krebs also published securities documents that showed Root9B CEO Joseph Grano Jr. bought large amounts of the company's stock just before the press release was published, then told Fox News they had thwarted the Russian hackers, known as Sofacy, after which the company stock "experienced a significant price increase."

After Krebs' article was published the share price sank again, according to the complaint.

However, Krieger determined that while the Krebs article poked a few holes in Root9B's story, it did not prove it false.

"One cannot say that one side's version of events is 'true' and the other's is 'false'; one can only critique the other side's reasoning or investigation, and decide that one explanation is more persuasive than the other," Krieger wrote.

"Because the Krebs article alone does not establish that Root's conclusion as to the true identity of the hackers is 'false' — as opposed to 'unpersuasive' — Mr. Hampton has not alleged facts sufficient to premise a securities fraud claim on the Sofacy report. The defendants are entitled to dismissal of those claims."

Hampton sued Root9B in June 2015 in California, from where it was quickly transferred to Colorado. Krieger dismissed it for failure to state a claim and closed the case.

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