ForeScout Technologies, Inc. (NASDAQ: FSCT)
According to the Complaint, Forescout Technologies, Inc. provides “security at first sight” by delivering software that enables device visibility and control that enables enterprises and government agencies to gain improved situational awareness of their environment (devices on their networks) and orchestrate actions to reduce cyber and operational risk.
The Complaint alleges that Defendants made materially false and misleading statements and omissions of material facts regarding the significant and disproportionate decline in Forescout’s financial performance and the related risk Forescout’s planned acquisition by Advent International Corp. would not close. As a result, Class members that purchased Forescout common stock during the Class Period did so at artificially inflated prices.
Specifically, the Complaint alleges that by the start of the Class Period on February 6, 2020 – when Forescout announced the Merger Agreement with Advent and positive fourth quarter 2019 earnings— Forescout knew that its business had begun to suffer a dramatic and undisclosed downturn, including it its fast-growing Asia Pacific and Japan (“APJ”) region that was impacted by COVID19 starting in January. In addition, Forescout was aware that its fourth quarter 2019 revenues were inflated through an abnormal transaction with one of its largest resale customers, Merlin International Inc., which a whistleblower has alleged to Advent was the result of a “channel stuffing scheme” in the fourth quarter of 2019. Because of these factors, Forescout knew that the consummation of the Transaction was exceptionally risky at the time it announced the Merger Agreement.
Forescout neither disclosed these facts to investors nor Advent at the time it signed the Merger Agreement. Nor did Forescout disclose that its financial collapse would preclude the availability of the debt financing needed to close the transaction. In fact, while Forescout provided certain revised projections during the sales process to bidders, it did not disclose the true known extent of its financial downturn, including the early impacts of COVID-19 on the APJ region, nor the abnormal transaction with Merlin.