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Exela Loses Bid to Throw Out Investor Suit on Revenue Prediction

Jan. 24, 2022, 8:50 PM

Exela Technologies Inc. must face accusations it made misleading statements about revenue predictability after a federal judge in Texas found investors’ new allegations as to mental state sufficient to move forward.

Investors allege the business process automation company misled them about how much of its revenue was predictable. Their latest complaint satisfied heightened pleading requirements for securities fraud “concerning at least one theory of liability,” so the suit can proceed, the U.S. District Court for the Northern District of Texas said.

The investors say that Exela told them 90% of its revenue was predictable, when in reality about 20% was unpredictable. Their prior complaint lacked specific facts showing that the company knew the revenue predictability statistic was wrong at the time it claimed 90% visibility, but Judge Sidney A. Fitzwater allowed them to file an amended version.

The latest investor complaint satisfactorily pleads that Exela made made materially false and misleading statements about what percentage of its revenue was predictable, Fitzwater’s Jan. 21 opinion said. The amended version also “added support for the scienter element of each of” the investor theories.

Looking at the most recent complaint as a whole, the investors have “pleaded with the required degree of particularity that defendants acted at least with severe recklessness when misrepresenting that Exela had 90% revenue visibility,” the opinion said. They also properly pleaded that “the inference of fraud is cogent and at least as compelling as any opposing inference of nonfraudulent intent.”

The investors fixed up their complaint by “bolstering the allegations about what defendants knew and when they knew it,” Fitzwater said. The new version also “adequately pleads that it was highly unreasonable for defendants to misrepresent Exela’s revenue visibility in this way,” and that “defendants’ conduct presented a danger of misleading buyers or sellers that was so obvious that defendants must have been aware of it.”

The court “does not reach, and expresses no view about, whether plaintiffs have rectified the deficiencies in their other theories,” Fitzwater said.

Glancy Prongay & Murray LLP represents the investors as lead counsel. Norton Rose Fulbright US LLP represents Exela.

The case is Shen v. Exela Techs. Inc., 2022 BL 20736, N.D. Tex., No. 3:20-cv-00691, motion to dismiss denied 1/21/22.

To contact the reporter on this story: Jennifer Bennett in Washington at jbennett@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com

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