A Symantec shareholder lawsuit alleges the cybersecurity giant manipulated quarterly financial results, prompting big payouts for top executives, and the resulting investigation and fallout caused investors to lose money.
The suit, filed in the U.S. District Court for the Northern District of California, names Symantec along with CEO Greg Clark, CFO Nick Noviello and former accounting head Mark Garfield as defendants. It was filed by James Felix, a Symantec investor, on behalf of everyone who purchased Symantec shares between May 11, 2017, and Aug. 2 of this year.
The suit seeks class-action status, damages for the lead plaintiff and all class members — and a jury trial.
Previously Blue Coat’s CEO, Clark became CEO of Symantec after it bought Blue Coat in 2016. The suit alleges that Clark and Noviello brought “Blue Coat’s unethical practices and ‘toxic culture’ with them to Symantec.”
“According to former employees, the former Blue Coat executives, such as … Clark and Noviello, were known for being ‘pretty freewheeling,'” it said.
According to the suit, Symantec, together with Clark, Noviello and Garfield, reported financial results that violated generally accepted accounting principles (GAAP) and also reported non-GAAP adjustments that were materially false and misleading.
When a whistleblower revealed the defendants’ “deceptive accounting practices,” the company’s audit committee and the U.S. Securities and Exchange Commission (SEC) launched investigations, according to the suit. With this news, and the later disclosure of the results of the committee’s investigation, Symantec’s stock price plunged, causing investors to “suffer substantial damages,” it said.
At the end of the committee’s investigation, Symantec said it would have to defer about $12 million in revenue and admitted to violations of its code of conduct.
Symantec issued the following statement in response to the suit:
“This lawsuit, which we believe is without merit and which we intend to defend against vigorously, was initially filed after the company announced the audit committee investigation in May 2018. The audit committee conducted a thorough investigation and concluded its investigation on Sept. 24, 2018, as previously announced. The company has filed its FY18 10K and as well as its FY19 first quarter and second quarter 10Qs with the SEC. Symantec is now current in its financials and in full compliance with Nasdaq listing rules.”
Defendants’ financial manipulations “allowed them to exceed their 2017 executive compensation plan targets,” according to the suit. Clark and Noviello obtained nearly $52.1 million in equity awards and will receive nearly $4 million more based on their “purported achievement of non-GAAP compensation metrics,” it said.
“Moreover, defendants were able to assure the market that Symantec’s recent and purportedly ‘transformative acquisitions’ of non-public Blue Coat and LifeLock were successful, that Symantec was achieving cost synergies, and that the company had emerged, as promised, as ‘the leading pure-play cybersecurity company’ in the world,” it said.
Symantec’s stock lost more than $7 billion in shareholder value during the alleged financial misconduct, and the shares remain down about 40 percent from the high at that time, the suit alleges.
Earlier this month, Symantec’s stock spiked after a report that Thoma Bravo has approached the company to express interest in acquiring it.