b'asserting claims under Sections 10(b) and 20(a) andbecause they were not employed throughout the Rule 10b-5 of the 1934 Act. Plaintiffs alleged thatentirety of the class period, noting that their personal the functionality of Zuoras platform was materiallyknowledge of the product integration projects and misrepresented by failing to disclose technologicalcustomer feedback arose directly from their positions challenges with integrating data between Billing andat Zuora as senior managers and project members. RevPro. Plaintiffs alleged that Zuora and its high-rankingThe court held that because plaintiffs properly alleged executives knew about RevPro integration failuresa predicate Section 10(b) claim, their 20(a) claim was throughout the class period, relying on confidentiallikewise sufficient. witness statements concerning various failed internalOn June 11, 2020, defendants answered the integration projects, and negative feedback fromconsolidated amended complaint. The court certified customers, with some customers withholding payment.the class on March 15, 2021.Defendants moved to dismiss the amended complaint, which the court denied, finding that plaintiffs adequately alleged that defendants statements wouldVeal v. LendingClub Corp., Case No. 18-cv-give a reasonable investor the impression of a state02599, 2020 WL 3128909 (N.D. Cal. June of affairs that differed in a material way from the one12, 2020) that actually existed and that the alleged confidentialFailure To Disclose Substance of witness statements sufficiently pled scienter.Ongoing InvestigationsFirst, the court held that plaintiffs adequately pled falsity, rejecting defendants contention that statementsLendingClub Corporation is an online peer-to-peer about Zuoras integrated features, and the functionality,lending company that connects borrowers and lenders prospects for upselling and cross-selling and growthin the United States. The company operates an online of Billing-RevPro were inactionable puffery. Rather,marketplace platform that matches borrowers and the court found that representations painting theinvestors, reviewing a borrowers application for a Zuora platform as a functioning, combined solution,loan and creditworthiness and then matching the when viewed alongside other statements describingborrower with an appropriate lender. LendingClubs increasing transactional upsells and cross-sells ofprimary issuing bank partner, WebBank, simultaneously additional products such as flagship products, [Billing]originates each loan and sells it to LendingClub at a and [RevPro] as a a key element of Zuoras growthprice that includes fees and interest. LendingClub buys strategy, could be interpreted as representations thatthese loans with the money from its matched lenders, functionality of Zuoras system would lead to growth.and services the loans.The court also held that plaintiffs adequately allegedIn May 2016, LendingClub disclosed that it had that defendants public statements concerning productengaged in deceptive conduct involving senior integration were contradicted by the alleged internalexecutives and managers who had knowingly misled failures of projects meant to test the product integrationinvestors as to the characteristics of certain loans. and problems customers allegedly faced such thatSpecifically, the company disclosed in an amended there were significant issues with major customersForm 10-K for FY15 that material weaknesses in internal refusing to pay Zuora due to integrations problems.control over financial reporting had led to self-dealing, Next, the court found that plaintiffs sufficientlyand sales of non-conforming loans, backdated loan pled scienter based on allegations from fourapplications and as a result it would be terminating confidential witnesses that defendants possessedthose senior executives as well as its founder, chairman, contemporaneous information that directly contradictedand CEO. LendingClubs Form 10-Q for 1Q 2016 likewise the disputed statements because defendants knewdisclosed the circumstances related to the internal the product projects failed and customers experiencedcontrol weakness, summarizing a board review of the integration failures and refused to pay. Specifically,circumstances and certain findings. The company also the court relied upon alleged confidential witnessdisclosed that it had received a subpoena from the statements confirming that the individual defendantsU.S. Department of Justice and that the company was management of and direct participation in thosealso contacted by the SEC. That same month, the U.S. projects, the witnesses direct emails to the individualFederal Trade Commission began an investigation into defendants regarding customer issues, and witnessthe companys conduct regarding deceptive practices presence during meetings wherein the decision toimpacting borrowers on its platform. In its Form 10-Q stop the Zuora product was characterized as a majorfor Q2/16, LendingClub included a lengthy and detailed financial blow material enough to impact our bonusdiscussion regarding the ongoing board review related payments. The court rejected defendants argumentto the internal control failures and investor fraud, noting that the confidential witness allegations were deficientthe SEC and DOJ inquiries related to that review but made no mention of the FTC investigation.27'