District Court Dismisses Securities Class Action Against root9B Technologies

On September 21, 2016, Wilson Sonsini Goodrich & Rosati secured a dismissal with prejudice on behalf of root9B Technologies, a provider of cybersecurity products and services, and its CEO and former CFO in a securities class action in the U.S. District Court for the District of Colorado. The plaintiff's complaint alleged that root9B had made false statements regarding its proprietary hardware and software and falsely claimed that the source of a cyberattack it thwarted was the infamous Russian hacking group called "Sofacy" or "APT28." The plaintiff's allegations were based on an article published on SeekingAlpha by an anonymous author called "Pump Stopper," a prolific short seller, and an article published by Brian Krebs, a cybersecurity journalist.

The defendants filed a motion to dismiss, challenging the sufficiency of the plaintiff's allegations that the challenged statements were false or misleading, that the defendant acted with the required state of mind to support allegations of fraud (called "scienter"), and that the plaintiff had adequately alleged loss causation with respect to any challenged statement. The magistrate judge performing an initial review of the defendants' motion to dismiss found that several of the plaintiff's allegations were sufficient to state claims for securities fraud and issued a recommendation denying the defendants' motion to dismiss. On behalf of the defendants, WSGR filed objections challenging the magistrate's recommendation with the chief judge of the district court. Ultimately, the chief judge declined to adopt the magistrate judge's recommendations and instead granted dismissal of all of the plaintiff's claims without leave to amend. In its decision, the court held that the plaintiff had failed to plead sufficient facts demonstrating that any challenged statements were false or misleading. The court also expressed doubts that the plaintiff's scienter and loss causation allegations were sufficient to state a claim.

The WSGR team representing root9B Technologies in the matter included partners Nicki Locker and Steve Guggenheim and associates Joni Ostler, Evan Seite, and Drew Liming.

For more information, please refer to the court's opinion.