Oracle agrees to settle class action over cloud sales tactics for $17.5m

Big Red denies any malpractice in relation to alleged 'coercive' product boosts

Companies bringing a class-action legal case against Oracle are seeking to settle the long running dispute, which alleged Big Red used aggressive cloud sales tactics to artificially inflate its share price.

Following several months of negotiations between the lead plaintiff and the global tech giant, Union Asset Management Holding AG has filed a motion asking the judge [PDF] to settle the four-year row for $17.5 million.

In 2018, the case began when City of Sunrise Firefighters’ Pension Fund filed a suit asserting violations of federal securities laws against Oracle and individual defendants. It followed a one-day stock price fall of 9.4 percent. The case alleged Oracle’s cloud revenues were driven by unsustainable "coercive" sales tactics, in the hopes of inflating revenue and hiding market disinterest.

An amended complaint was filed in March 2019 when German investment company Union Asset Management Holding AG took over as lead plaintiff.

The proposed agreement was reached following formal mediation sessions with Jed Melnick of JAMS, an experienced mediator of securities class action and other complex disputes. The proposed settlement — which both parties accepted — is based on Melnick’s recommendation.

The lead plaintiff has put forward the settlement on the basis that continuing with the litigation could be beset by "substantial risks, costs, and delays", according to court papers.

The weaknesses could have come down to the allegations being based on the narrow idea of omissions: that the plaintiffs arguing Oracle's statements about the drivers of its cloud revenue during the relevant period were "misleading when made due to the omission of certain facts related to Oracle's cloud sales practices."

Oracle in turn was set to argue that its revenue — and guidance — was accurately reported; and that even if any alleged improper sales practices had occurred, they were not a material driver of cloud sales. Oracle was also set to argue that, in the case of allegations of discounts to customers of Oracle's cloud products, "such discounts were proper and could not be the basis for a claim of fraud."

"Defendants argued vigorously that they believed their statements to be true and that they had no motive to commit fraud. Specifically, they contended that defendants did not benefit from the alleged fraud, including by pointing to the significant amounts of stock buybacks Oracle initiated during the class period, and the significant amount of stock retained by multiple defendants through the class period," the court papers said.

Oracle was also set to argue that the investors bringing the case could not establish loss causation because certain of the "alleged disclosures did not correct earlier-reported cloud revenue or growth rates, and that the vast majority of alleged corrective disclosures did not reference allegedly improper sales practices."

As such, most — if not all — of the stock price declines could not be "causally connected" to the alleged misrepresentations, the filing stated.

Nonetheless, Oracle seems set to settle for $17.5 million, plus accrued interest, after the deduction of legal costs. ®