DALLAS (CN) – Top officers inflated the share price of SolarWinds, a software developer, through false and misleading statements about the company’s business, financial results and prospects, shareholders say in a federal class action. The class claims the top two officers reaped a total of $6.8 million by selling their own shares at inflated prices.
Austin-based SolarWinds is a developer of IT network management, network monitoring, storage management software and other products and services. It provides IT management software to more than 93,000 customers worldwide, which is used by more than 1 million engineers, according to the complaint and the company’s website.
The class claims SolarWinds and its top three officers misled investors by misrepresenting and failing to disclose material problems with license revenue and sales to the federal government. And they claim the company failed to disclose material problems in its sales management team that prevented SolarWinds from accurately predicting its ability to make and maintain sales.
On July 21 the company abruptly reduced its financial forecasts, the complaint states. “Now, the high end of the company’s guidance was below the low end of the previously announced guidance. Describing why the company was abruptly cutting its financial forecasts, defendants revealed there had been a 44% decline in United States federal government sales that was caused by the inability of the company’s ‘US federal sales management team to predict and positively influence’ the pace of sales,” according to the complaint.
The next day, several analysts downgraded SolarWinds’ stock – including Jeffries & Co., Morgan Stanley, Needham & Company and Goldman Sachs. The class claims the downgrades were was due to “too many explanations” and a “license miss of significant magnitude.”
The price of its common stock plummeted by 23 percent, $3.81, on heavy trading to close at $12.71 on July 22.
The plaintiffs seek damages on behalf of all purchasers of SolarWinds common stock during the class period from Feb. 8, 2010 to July 21.
Named as defendants are SolarWinds, president and CEO Kevin B. Thompson, former chairman and CEO Michael S. Bennett, and CFO Michael J. Berry.
The class claims Thompson sold 33,838 shares at inflated prices “for total insider trading proceeds of $720,475.”
It claims Bennett sold 300,205 shares at inflated prices “for total insider trading proceeds of $6,132,205.”
Berry is not accused of trading on inside information.
The class is represented by Joe Kendall of the Kendall Law Group.