Bloomberg Law
March 16, 2023, 5:29 PMUpdated: March 16, 2023, 7:29 PM

Forescout Faces Reinstated Investor Suit Over Sales, Merger (1)

Martina Barash
Martina Barash

Forescout Technologies Inc. investors can proceed with part of their suit alleging the cybersecurity company misled them about the health of its sales pipeline, a possible merger, and other issues, the Ninth Circuit ruled Thursday.

The investors adequately pleaded the falsity and level of intent necessary to maintain securities fraud claims focused on five company statements, Judge Carlos T. Bea said in an opinion joined by Judge Jacqueline H. Nguyen.

In a partial dissent, Judge Michael Daly Hawkins said he would have allowed claims based on only one of the statements to proceed. The lower court had dismissed the suit entirely.

The suit concerns the lead-up to the 2020 announcement of a possible merger with private equity firm Advent International Corp. and the rocky period following that announcement.

Glazer Capital Management LP, related funds, and other investors alleged on behalf of a proposed class that Forescout and two of its executives made misleading statements about the certainty of some sales closing in 2019 and about the experience of its sales force. The defendants also allegedly misled them about two interrelated issues: its relationship with partner organizations and the likelihood of the Advent merger.

News of the planned merger in February 2020 allegedly led three “channel,” or marketing, partners to leave, potentially taking tens of millions of dollars of profit away. And Advent began to get cold feet, informing Forescout in May 2020 that it might not go through with the tie-up, the investors said. Yet Forescout said in a press release a few days later that it looked forward to completing the merger.

Advent terminated the merger plan, Forescout sued Advent, and they settled by agreeing to combine at a lower acquisition price.

Reversal in Part

The US District Court for the Northern District of California dismissed the suit, saying the investors didn’t adequately allege the falsity of any of the statements under securities laws or the defendants’ level of intent.

The US Court of Appeals for the Ninth Circuit reversed in part. The investors still can’t proceed on statements about the “slipped” sales closing within 2019, about the sales force, and about the channel partners, Bea said. They also can’t maintain claims based on the earliest statements touting the Advent deal, he said.

But statements about the effect of the slipped deals, and alternative explanations for poor financial performance, were adequately pleaded, he said. And the investors also had sound claims over the May 2020 press release about the Advent merger, he said.

Hawkins said the statements about deal delays should remain out of the suit. “The complaint alleges the company had an ‘inadequate internal system for projecting future revenue,’ but this is hardly the same as intentional falsification and scienter,” he said. He agreed with the majority that claims related to the press release about Advent should proceed.

Abraham, Fruchter & Twersky LLP and Pomerantz LLP represented the investors. Ropes & Gray LLP represented Forescout. Wilson Sonsini Goodrich & Rosati represented the individual defendants.

The case is Glazer Cap. Mgmt., L.P, et al v. Forescout Techs., Inc., 9th Cir., No. 21-16876, 3/16/23.

(Adds context and detail from opinion throughout.)

To contact the reporter on this story: Martina Barash in Washington at

To contact the editors responsible for this story: Rob Tricchinelli at; Carmen Castro-Pagán at; Andrew Harris at