b'the U.S. Federal Trade Commission alleging that ZoomLamartina v. VMware, Inc., Case No. had intentionally designed their web conferencing20-cv-2182 (N.D. Cal.) service to bypass browser security settings andAllegedly Deceptive Backlog Recordsremotely enable a users web camera without the consent of the user. EPICs complaint further allegedVMware, Inc. (VMware) is a California-based software that Zoom had not acted on this information until it wasand technology firm providing application modernization, made public, and charged the company with unfaircloud computing, and virtualization software and services and deceptive practices under Section 5 of the FTCfor customers worldwide. VMware reports revenue from Act. Despite these accusations, Zoom continued totwo line items: licenses and services. This revenue is advertise the security of its communications platform.recognized as the company performs obligations on Then, on March 26, 2020, a media outlet reported thatexisting deals. Thus, a sale made in one quarter might Zooms iOS app was sending analytics to Facebook,be delivered and recognized as revenue in the next even if users didnt have a Facebook account. Thequarter. These types of sales were included in VMwares following day, the New York Times reported that Zoombacklog: a representation of sales made but not yet was under scrutiny by the New York State Attorneyfulfilled. On February 27, 2020, VMware revealed that Generals (AG) office related to its data privacy andits total backlog had declined 96% from its height one security practices, and Bloomberg reported a lawsuityear back, in part due to the industry shift from licensing by a Zoom user who claimed the company was illegallydeals to subscription and Software-as-a-Service (SaaS) disclosing personal information. On March 31, 2020, theproducts, and that the company would not meet the fourth FBI issued a warning about Zoom-bombing, in whichquarter 2020 or Fiscal Year 2020 guidance it issued three hackers would take over video conferences on the Zoommonths prior. On the same day, VMware also announced app. Numerous publications followed scrutinizing andthat the SEC had been investigating VMwares backlog critiquing Zooms security practices. Ultimately, on Apriland associated accounting practices since December 1, 2020, Zooms CEO issued a blog post admitting that2019. The next day, VMwares stock dropped 11%, closing the company had fallen short of the communitysandat a 52-week low of $120.52.our ownprivacy and security expectations. BetweenOn March 31, 2020, investors filed a putative class March 27, 2020 and April 6, 2020, Zooms stock price fellaction lawsuit against VMware, the companys CEO, from $151.70 a share to $121.93 per share. and its CFO, alleging violations of Sections 10(b), 20(a) On April 7, 2020, investors filed a putative class actionand 20A of the 1934 Act and Rule 10b-5 promulgated lawsuit against Zoom and several of its executives,thereunder. A lead plaintiff was appointed on July alleging violations of Sections 10(b) and 20(a) of the20, 2020 and it filed a consolidated complaint on 1934 Act and Rule 10b-5 promulgated thereunder.September 18, 2020. The main thrust of plaintiffs The initial complaint claimed that Zoom made falseargument is that, throughout 2019, VMware artificially or misleading statements or otherwise failed toinflated its backlog by recording sales that exceeded disclose the companys inadequate data privacy andmarket expectations in the backlog, as opposed to security measures, including that, contrary to companyin the quarter in which they were actually fulfilled, assertions, Zooms video communications service wassmoothing the companys revenue to create the not end-to-end encrypted. Plaintiffs also alleged thatimpression of steady sales. In reality, plaintiff claimed, Zooms offering documents contained merely generic,VMware was plagued by weaknesses as it headed boilerplate representations concerning Zooms risksinto 2020, driven by internal reorganization and trouble related to cybersecurity, data privacy, and hacking.managing the shift away from licensing products It was foreseeable, plaintiffs alleged, that use oftowards subscriptions and SaaS. VMware allegedly the companys product would decline and its stocktreated its backlog as a slush fund in order to conceal price would drop when Zooms misrepresentationsthe impact of these adverse business conditions and about data privacy and security came to light and thecontinued to issue predictions of strong performance in weaknesses of its security were revealed.the upcoming year. In addition, plaintiff alleged that, [k]nowing that the Companys massive backlog reported Lead plaintiff and lead counsel were appointed onat the close of FY 2019 would be drawn upon and not November 4, 2020, but on November 18, 2020,replenished, VMware executives began selling large an investor group sought reconsideration of thatquantities of company stock while the share price was order, which the court denied on April 12, 2021,inflated to record highs. ordering the parties by April 26, 2021, to jointly propose a schedule for defendants to respond toOn November 17, 2020, defendants moved to dismiss the consolidated complaint.the consolidated complaint, arguing, among other things, that VMwares backlog cannot support a claim 57'