Defense Softwares

SolarWinds Government Data Breach Leads to Securities Action – JD Supra

Posted by Security Systems

The massive data breach of the United States Commerce and Treasury Departments that has roiled the federal government has resulted in federal securities litigation. On January 4, 2021, Plaintiff-Shareholder Timothy Bremer filed a class action complaint against SolarWinds and SolarWinds’ corporate executives in the United States District Court for the Western District of Texas. SolarWinds provides information technology and infrastructure management software products to entities around the globe, including to various U.S. government vendors in the executive branch, military, and intelligence services. According to the complaint, Russian hackers gained access to government email traffic by deceptively interfering with software updates released by SolarWinds. The complaint alleges that SolarWinds violated federal securities law by making false and/or misleading statements and failing to disclose material facts regarding SolarWinds’ cybersecurity practices and protocols, which artificially inflated the market price of SolarWinds’ shares. When news of the hack became public, the value of Solarwinds’ securities dropped, thereby producing an economic loss for investors within the class period of February 24, 2020 through December 15, 2020. The complaint asserts claims for violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 against SolarWinds and its corporate executives, and for violations of Section 20(a) of the Exchange Act against the corporate executives.

To establish securities fraud under Rule 10b-5, a plaintiff must show (1) a material misrepresentation or omission (2) made with scienter (3) in connection with the purchase or sale of a security; (4) reliance on
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