Court Upholds Securities Fraud Complaint Against WageWorks, Inc. and Its Former Executives

6/1/2020 - On June 1, 2020, Judge Jeffrey S. White of the United States District Court for the Northern District of California denied defendants’ motions to dismiss the Consolidated Class Action Complaint in In re: WageWorks, Inc. Securities Litigation. Barrack, Rodos & Bacine, the court-approved lead counsel, filed the consolidated complaint in May 2019 on behalf of the court-appointed lead plaintiff, BR&B clients the Public Employees' Retirement System of Mississippi, the Public Employees Retirement Association of New Mexico, and the Government Employees’ Retirement System of the Virgin Islands.  The consolidated complaint alleges that WageWorks, a “consumer-directed benefits” administrator, and its former executives violated the federal securities laws by misleading investors about its revenue recognition in connection with the company’s March 2016 contract with the United States Office of Professional Management (“OPM”).  According to the complaint, the company began to recognize revenue in August 2016 during the start-up phase of the contract and long before it actually began to provide services to the OPM.  By March 1, 2018, the company was forced to announce that its 2017 Annual Report would be delayed due to “material weakness in its internal controls over financial reporting.”  

In denying defendants’ motions to dismiss on all points, the court held that the allegations in the consolidated complaint met the heightened pleading standards in the federal securities laws. The court found that the allegations that the company had improperly recognized revenue derived from the OPM contract satisfied those pleading requirements, as did the allegations about the company’s failure to timely write-down the value of a software platform developed for a client that had terminated its relationship with the company.  In doing so, the court noted that allegations that the company had failed to share some key details about its finances suggests "deliberate recklessness because it indicates that senior management possessed information that, had it been communicated, would have indicated that the financial reporting was false."  A copy of the court’s order is available here.

 This important decision means that we can move forward with the prosecution of the case on behalf of all purchasers of WageWorks common stock between May 6, 2016 and March 1, 2018, inclusive, and all investors who purchased WageWorks stock directly traceable to the company’s June 19, 2017 stock offering.  If you have any questions about the June 1, 2020 decision, or the litigation involving WageWorks, please contact BR&B partners Stephen R. Basser (sbasser@barrack.com), Samuel M. Ward (sward@barrack.com), or Jeffrey A. Barrack (jbarrack@barrack.com).