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Oracle, Ellison to Face Securities Class Action Over Cloud Sales

May 10, 2022, 4:34 PM

Oracle Corp. and its senior leaders, including billionaire chairman Larry Ellison, must face class action litigation over claims they misled investors about the financial health of the tech giant’s cloud computing segment, a federal judge in San Jose, Calif., ruled.

Judge Beth Labson Freeman certified the securities fraud case as a class action, finding that the damages model proposed by a group of investors could likely determine in one stroke whether and to what extent each shareholder was harmed by the alleged scheme to inflate Oracle’s stock price.

Freeman, writing for the US District Court for the Northern District of California, approved an “out of pocket” methodology covering only actual losses suffered by investors, not gains they lost the chance to realize.

The technique complies with US Supreme Court precedents requiring plaintiffs leading class actions to propose statistical models that measure “only those damages attributable to a plaintiff’s liability theory,” the judge wrote Monday.

The principle can be especially relevant in complex civil cases, like securities and antitrust lawsuits, that often have their liability theories pared back before the class certification stage.

Freeman narrowed the Oracle case last year to focus on just 13 company statements, down from 50 the shareholders originally targeted.

The suit accuses Oracle’s leaders of attributing its cloud sales success to sustainable business practices when in fact it was the result of tactics that produced only short-term revenue boosts. Other senior executives named as defendants include Safra Catz, the company’s billionaire CEO.

Freeman held in March 2021 that although Oracle had no affirmative duty to inform investors about the specifics of its cloud-related revenues, the company and its leaders took on an obligation to speak truthfully when they went out of their way to discuss those details.

In her ruling Monday, the judge found that the damages model proposed by the investors was sufficiently tied to the suit’s “narrowed liability theory.” The methodology “does not depend on the 50 challenged statements originally identified,” she said.

Bernstein Litowitz Berger & Grossmann LLP is lead counsel for the investors. Oracle and its executives are represented by Morrison & Foerster LLP.

The case is City of Sunrise Firefighters’ Pension Fund v. Oracle Corp., N.D. Cal., No. 18-cv-4844, 5/9/22.

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com