SAN JOSE (CN) - Directors of network security firm FireEye pumped the share price with false and misleading statements then sold their own shares for "tens of millions of dollars" before the price plummeted by two-thirds, shareholders say in a class action.
Lead plaintiff John E. Collins sued FireEye and its four top officers on Nov. 24, in Federal Court.
Collins claims FireEye raised $325 million in a Sept. 20, 2103 IPO, at $20 a share.
FireEye stock rose to its all-time high of $95.63 on March 5 this year, after the company acquired Mandiant Corp. On March 6, FireEye raised $1.1 billion in a follow-on stock offering, at $82 a share, according to the complaint.
"Mere days after the follow-on offering, a significant number of the company's
insiders sold their shares at $79.54, earning tens of millions of dollars in profits. In the ensuing weeks, the company's stock began a steady decline," the complaint states.
FireEye announced its first-quarter 2014 results on May 6: its revenue of $24.5 million fell "meaningfully short" of analysts' estimates of $31 million, according to the complaint.
By Oct. 10, the stock was trading at $25.76, down 74 percent from its high.
Collins claims that throughout this time, the defendants made false and misleading statements and failed to disclose adverse facts.
"Specifically, defendants made false and/or misleading statements and/or failed to disclose: (a) the company's business model had radically changed from that of a
software company with high fixed costs but low marginal costs that would not escalate with increases in subscriber base, to an end-to-end service provider; (b) that the company's secret strategy would require highly trained professional staff to respond to network security breaches, their number increasing with the customer base; and (c) the company's costs would therefore escalate incrementally with an increased customer base so that the company's future profitability was in serious doubt," according to the complaint.
Collins seeks class certification and damages for securities violations.
He is represented by Rachelle Rickert, with Wolf Haldenstein Adler Freeman & Herz, of San Diego.
Defendants include CEO and Chairman of the Board David D. GeWalt; CFO and Senior Vice President Michael J. Sheridan; founder, former CEO, chief technology officer and Vice Chairman of the Board Ashar Aziz; and COO and Senior Vice President Kevin Mandia.
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