Zendesk, Board Members Sued by Shareholders After Price Drop

Plaintiff Anthony Anderson filed a shareholder derivative complaint against customer service software company Zendesk and several of its board members last week. The defendants are accused of breaching fiduciary duties by improperly disclosing a data breach to the company’s shareholders. The case is being held in the Northern District of California before Magistrate Judge Joseph C. Spero.

On July 30, 2019, Zendesk reported that its sales growth had lagged in the second quarter, falling to 33% in Europe, Middle East, and Africa (EMEA), and 31% in the Asia-Pacific (APAC) region. These contrasted with the previous quarter’s revenue growth of approximately 38% in both the EMEA and APAC. Upon this news, “Zendesk’s share price fell $9.56, or 10%, to close at $83.56 per share on July 31, 2019, on unusually high volume.”

Earlier in 2019, Zendesk “emphasized the importance of data security, given the nature of its products,” and “suggested that its data was secure” after warning that data breaches could cause a loss in customers. However, on October 2, 2019, the company disclosed in a blog post “that it had experienced a data breach in 2016 involving 10,000 Support and Chat accounts that were activated prior to November 1, 2016, and that Zendesk agents’ email addresses, phone numbers, and passwords had been accessed.”

After this news was made public, the company’s share price fell by another 4%, “to close at $69.81 per share on October 2, 2019, on unusually heavy trading volume.” According to the complaint, Zendesk CEO Mikkel Svane “sold nearly $20 million in Zendesk stock while in possession of material nonpublic information.” Other board members, including Elena Gomez and Norman Gennaro, are also accused of profiting off sales of Zendesk stock while possessing non-public information of the data breach.

As a result of the defendants’ alleged breach of fiduciary duties, Anderson seeks “extraordinary equitable and/or injunctive relief” and an order directing Zendesk to reform its corporate governance. The plaintiff is represented by Glancy Prongay & Murray.