Case 3:20-cv-03671-JCS Document 1 Filed 06/02/20 Page 1 of 21
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`Robert V. Prongay (SBN 270796)
`Pavithra Rajesh (SBN 323055)
`GLANCY PRONGAY & MURRAY LLP
`1925 Century Park East, Suite 2100
`Los Angeles, California 90067
`Telephone: (310) 201-9150
`Facsimile: (310) 201-9160
`Email: rprongay@glancylaw.com
`
`Benjamin I. Sachs-Michaels
`GLANCY PRONGAY & MURRAY LLP
`712 Fifth Avenue
`New York, New York 10019
`Telephone: (212) 935-7400
`Facsimile: (212) 756-3630
`Email: bsachsmichaels@glancylaw.com
`
`Counsel for Plaintiff
`
`
`UNITED STATES DISTRICT COURT
`
`NORTHERN DISTRICT OF CALIFORNIA
`ANTHONY ANDERSON, Derivatively on
` Case No.
`Behalf of Nominal Defendant ZENDESK,
`
`VERIFIED SHAREHOLDER
`INC.,
`DERIVATIVE COMPLAINT
`
`
`Plaintiff,
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`
`
`v.
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`
`MIKKEL SVANE, ELENA GOMEZ,
`NORMAN GENNARO, MICHELLE
`WILSON, CARL BASS, HILARIE
`KOPLOW-MCADAMS, MICHAEL
`FRANDSEN, THOMAS SZKUTAK,
`MICHAEL CURTIS, and CARYN
`MAROONEY,
`
`
`Defendants.
`
`
`and
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`ZENDESK, INC., a Delaware Corporation,
`
`
`Nominal Defendant,
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 3:20-cv-03671-JCS Document 1 Filed 06/02/20 Page 2 of 21
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`Plaintiff Anthony Anderson (“Plaintiff”), by and through his undersigned attorneys, brings
`this derivative complaint for the benefit of nominal defendant, Zendesk, Inc. (“Zendesk” or the
`“Company”), against certain members of its Board of Directors (the “Board”) and certain of its
`officers seeking to remedy defendants’ breaches of fiduciary duties, insider trading (i.e. Brophy
`claim), and violations of § 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”).
`Plaintiff’s allegations are based upon his personal knowledge as to himself and his own acts, and
`upon information and belief, developed from the investigation and analysis by Plaintiff’s counsel,
`including a review of publicly available information, including filings by Zendesk with the U.S.
`Securities and Exchange Commission (“SEC”), press releases, news reports, analyst reports,
`investor conference transcripts, publicly available filings in lawsuits, and matters of public record.
`I.
`NATURE AND SUMMARY OF THE ACTION
`1.
`Zendesk is a customer service software company that offers a platform and products
`to unify customer communication and customer data across disparate channels and departments.
`2.
`In early 2019, the Company reported strong demand for its products, leading to
`revenue growth of at least 38%, including in the Europe, Middle East, and Africa (“EMEA”) and
`Asia-Pacific (“APAC”) regions. Zendesk also emphasized the importance of data security, given
`the nature of its products. Though the Company warned that breaches of data security could cause
`Zendesk to lose customers, it suggested that its data was secure.
`3.
`On July 30, 2019, Zendesk disclosed that its sales growth in the EMEA and APAC
`regions “lagg[ed] other regions” in second quarter 2019. Specifically, revenue growth in the EMEA
`region fell to 33% and growth in the APAC region fell to 31%. Regarding fiscal 2019 financial
`guidance, Zendesk expected ongoing revenue growth of just 30% and free cash flow of just $35-
`$45 million (compared to prior guidance of $55-$65 million), citing increased vendor prepayments,
`capital expenditures, and acquisition costs.
`4.
`On this news, Zendesk’s share price fell $9.56, or 10%, to close at $83.56 per share
`on July 31, 2019, on unusually high volume.
`5.
`Then, on October 2, 2019, in a blog post, Zendesk disclosed that it had experienced
`a data breach in 2016 involving 10,000 Support and Chat accounts that were activated prior to
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`Case 3:20-cv-03671-JCS Document 1 Filed 06/02/20 Page 3 of 21
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`November 1, 2016 and that Zendesk agents’ email addresses, phone numbers, and passwords had
`been accessed.
`6.
`On this news, Zendesk’s share price fell $2.90, or about 4%, to close at $69.81 per
`share on October 2, 2019, on unusually heavy trading volume.
`7.
`These revelations precipitated the filing of a securities class action in this District
`against Zendesk and certain of defendants, captioned Reidinger v. Zendesk, Inc., et al., Case No.
`3:19-cv-06968-CRB (the “Securities Class Action”).
`8.
`Plaintiff did not make a litigation demand prior to filing this action because such
`demand would have been futile based upon the composition of the Board and the actions taken by
`the Board. The Board is currently composed of seven members, all of whom are named in this
`action. As alleged herein, Svane as Chief Executive Officer and Wilson, Frandsen, and Szkutak as
`members of the Audit Committee, knew that demand for the Company’s products was declining yet
`allowed misleading statements to be disseminated. Moreover, Svane sold nearly $20 million in
`Zendesk stock while in possession of material nonpublic information. Thus, more than half the
`members would be interested in a demand to investigate their own wrongdoing.
`II.
`JURISDICTION AND VENUE
`9.
`This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331 in that this
`Complaint states a federal question: violations of Section 10(b) of the Securities Exchange Act of
`1934. This Court has supplemental jurisdiction over the state law claims asserted herein pursuant
`to 28 U.S.C. § 1367(a). This action is not a collusive one to confer jurisdiction on a court of the
`United States which it would not otherwise have.
`10.
`Venue is proper in this District pursuant to 28 U.S.C. §§ 1391 and 1401 because a
`substantial portion of the transactions and wrongs complained of herein occurred in this District,
`and the Defendants have received substantial compensation in this district by engaging in numerous
`activities that had an effect in this District.
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`Case 3:20-cv-03671-JCS Document 1 Filed 06/02/20 Page 4 of 21
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`III.
`PARTIES
`Plaintiff
`11.
`Plaintiff Anthony Anderson purchased shares of Zendesk in February 2019 and has
`continuously owned his stock since that date.
`Nominal Defendant
`12.
`Nominal Defendant Zendesk is a Delaware corporation with its principal executive
`offices located at 1019 Market Street, San Francisco, CA 94103. The Company’s stock trades on
`the New York Stock Exchange (“NYSE”) under the symbol “ZEN.”
`Defendants
`13.
`Defendant Mikkel Svane (“Svane”) co-founded Zendesk and has served as its Chief
`Executive Officer (“CEO”) since August 2007 and as Chair of its Board of Directors since January
`2014. Svane is a defendant in the Securities Class Action.
`14.
`Defendant Elena Gomez (“Gomez”) has served as Chief Financial Officer (“CFO”)
`of the Company since May 2016. Gomez is a defendant in the Securities Class Action.
`15.
`Defendant Norman Gennaro (“Gennaro”) has served as President of Sales of the
`Company since November 2019. Prior to that, he served as Senior Vice President, Worldwide Sales
`from January 2018 to November 2019. Gennaro is a defendant in the Securities Class Action.
`16.
`Defendant Michelle Wilson (“Wilson”) has served as a director of the Company
`since January 2014. Wilson is a member of the Audit Committee.
`17.
`Defendant Carl Bass (“Bass”) has served as a director of the Company since February
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`2016.
`
`18.
`Defendant Hilarie Koplow-McAdams (“Koplow-McAdams”) has served as a
`director of the Company since September 2017.
`19.
`Defendant Michael Frandsen (“Frandsen”) has served as a director of the Company
`since November 2017. Frandsen is a member of the Audit Committee.
`20.
`Defendant Thomas Szkutak (“Szkutak”) has served as a director of the Company
`since January 2019. Szkutak is the Chair of the Audit Committee.
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`Case 3:20-cv-03671-JCS Document 1 Filed 06/02/20 Page 5 of 21
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`Defendant Michael Curtis (“Curtis”) has served as a director of the Company since
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`21.
`April 2019.
`22.
`Defendant Caryn Marooney (“Marooney”) served as a director of the Company from
`January 2014 to May 2020.
`23.
`The defendants named in ¶¶ 13-22 are sometimes referred to hereinafter as the
`“Individual Defendants.”
`IV. DUTIES OF THE INDIVIDUAL DEFENDANTS
`24.
`By reason of their positions as officers, directors, and/or fiduciaries of Zendesk and
`because of their ability to control the business and corporate affairs of Zendesk, at all relevant times,
`the Individual Defendants owed Zendesk and its shareholders fiduciary obligations of good faith,
`loyalty, and candor, and were required to use their utmost ability to control and manage Zendesk in
`a fair, just, honest, and equitable manner. The Individual Defendants were required to act in
`furtherance of the best interests of Zendesk and its shareholders so as to benefit all shareholders
`equally and not in furtherance of their personal interest or benefit. Each director and officer of the
`Company owes to Zendesk and its shareholders a fiduciary duty to exercise good faith and diligence
`in the administration of the affairs of the Company and in the use and preservation of its property
`and assets, and the highest obligations of fair dealing.
`25.
` The Individual Defendants, because of their positions of control and authority as
`directors and/or officers of Zendesk, were able to and did, directly and/or indirectly, exercise control
`over the wrongful acts complained of herein. Because of their advisory, executive, managerial, and
`directorial positions with Zendesk, each of the Individual Defendants had knowledge of material
`non-public information regarding the Company.
`26.
`To discharge their duties, the officers and directors of Zendesk were required to
`exercise reasonable and prudent supervision over the management, policies, practices and controls
`of the Company. By virtue of such duties, the officers and directors of Zendesk were required to,
`among other things:
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`Case 3:20-cv-03671-JCS Document 1 Filed 06/02/20 Page 6 of 21
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`V.
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`a. Exercise good faith to ensure that the affairs of the Company were conducted in
`an efficient, business-like manner so as to make it possible to provide the highest
`quality performance of their business;
`b. Exercise good faith to ensure that the Company was operated in a diligent, honest,
`and prudent manner and complied with all applicable federal and state laws,
`rules, regulations and requirements, and all contractual obligations, including
`acting only within the scope of its legal authority;
`c. Exercise good faith to ensure that the Company’s communications with the
`public and with shareholders are made with due candor in a timely and complete
`fashion; and
`d. When put on notice of problems with the Company’s business practices and
`operations, exercise good faith in taking appropriate action to correct the
`misconduct and prevent its recurrence.
`SUBSTANTIVE ALLEGATIONS
`A.
`Background
`27.
`Zendesk describes itself as a customer service software company that offers a
`platform and Software-as-a-Service (“SaaS”) products to unify customer communication and
`customer data across disparate channels and departments. According to the Company’s public
`filings, its products simplify the process of providing “omnichannel” customer service and
`engagement across self-service, phone calls, live chat, messaging, and email. Zendesk’s “open” and
`“flexible” customer relationship management (“CRM”) platform, Zendesk Sunshine, is built on the
`public cloud and open standards.
`B.
`The Individual Defendants Caused the Company to Issue Materially Misleading
`Statements
`28.
`On February 5, 2019, after the market closed, defendants Svane, Gomez, Wilson,
`Bass, Koplow-McAdams, Frandsen, Szkutak, and Marooney caused Zendesk to issue a press release
`announcing its fourth quarter and full year 2018 financial results. According to the press release,
`fourth quarter “revenue increased 41% year over year to $172.2 million” and “GAAP operating loss
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`Case 3:20-cv-03671-JCS Document 1 Filed 06/02/20 Page 7 of 21
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`[was] $36.5 million.” For the fiscal year, the Company reported “revenue [had] increased 39% year
`over year to $598.7 million” and “GAAP operating loss of $137.9 million.” Moreover, the press
`release provided fiscal 2019 guidance, stating in relevant part:
`Outlook
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`As of February 5, 2019, Zendesk provided guidance for the quarter ending March
`31, 2019 and for the year ending December 31, 2019.
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`For the quarter ending March 31, 2019, Zendesk expects to report:
` Revenue in the range of $178.0-180.0 million
` GAAP operating income (loss) in the range of $(44.0)-(42.0) million, which
`includes share-based compensation and related expenses of approximately
`$38.2 million, amortization of purchased intangibles of approximately $2.2
`million, and acquisition-related expenses of approximately $1.6 million
`
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`* * *
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`For the full year ending December 31, 2019, Zendesk expects to report:
` Revenue in the range of $795.0 - 805.0 million
` GAAP operating income (loss) in the range of $(154.0)-(149.0) million,
`which
`includes share-based compensation and related expenses of
`approximately $154.2 million, amortization of purchased intangibles of
`approximately $8.8 million, and acquisition-related expenses of
`approximately $4.0 million
`
`
`29.
`The same day, defendants Svane, Gomez, Wilson, Bass, Koplow-McAdams,
`Frandsen, Szkutak, and Marooney caused Zendesk to publish a Shareholder Letter, which
`emphasized: “For the full-year 2018, [Zendesk] delivered 39% revenue growth—an acceleration
`compared to 38% growth for full-year 2017—and increased [its] operating cash flow margin by
`approximately three percentage points and free cash flow margin by approximately two percentage
`points compared to full-year 2017.” Suggesting that the Company would continue on that trajectory,
`the Shareholder Letter stated: “Around the world, companies large and small are seeking to
`transform their businesses through customer experience, and that trend is driving strong demand
`for our products,” adding that, “[i]n 2019, we will continue to capitalize on this trend.” The
`Shareholder Letter noted that, “[w]ith customers in more than 160 countries and territories and
`approximately half of our revenue outside of the U.S., we are seeing strong global demand and
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`Case 3:20-cv-03671-JCS Document 1 Filed 06/02/20 Page 8 of 21
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`revenue growth in every region,” noting that for FY18 “revenue [had] increased . . . 43% in EMEA
`[and] 47% in APAC.”
`30.
`The above statements in ¶¶ 28-29 were materially misleading because they failed to
`disclose that declining demand for Zendesk’s SaaS products, particularly in the EMEA and APAC
`regions, adversely impacted the Company’s financial prospects.
`31.
`On February 14, 2019, defendants Svane, Gomez, Wilson, Bass, Koplow-McAdams,
`Frandsen, Szkutak, and Marooney caused Zendesk to file its annual report on Form 10-K with the
`SEC for the period ended December 31, 2018 (the “2018 10-K”). The report was signed by
`defendants Svane, Gomez, Wilson, Bass, Koplow-McAdams, Frandsen, Szkutak, and Marooney
`and affirmed the previously reported financial results. Regarding “key characteristics” of Zendesk’s
`“Technology,” the 2018 10-K stated, in relevant part:
`
` Security. Each of our products are [sic] designed to host a large quantity of
`customer data. We maintain a comprehensive security program designed to
`help safeguard the security and integrity of our customers’ data. We
`regularly review our security program. In addition, we regularly obtain
`third-party security audits and examinations of our technical operations
`and practices covering data security.
`
`32.
`The 2018 10-K purported to warn that “breaches of data security . . . could have an
`adverse effect on [Zendesk’s] future operating results,” and could cause it to “lose existing
`customers or fail to attract new customers” or to “incur significant liabilities” if its data systems
`were breached. Similarly, the 2018 10-K stated that “data security concerns could result in
`additional costs and liabilities to [it] or inhibit sales of [its] products” because its “products can be
`used to collect and store personal information.” As a result, “the costs of compliance with, and
`other burdens imposed by, the laws, regulations, and policies that are applicable to the businesses
`of [its] customers may limit the use and adoption of, and reduce the overall demand for, [its]
`products.”
`33.
`The above statements in ¶¶ 31-32 were materially misleading because they concealed
`that Zendesk’s clients had been subject to data breaches since as early as 2016.
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`Case 3:20-cv-03671-JCS Document 1 Filed 06/02/20 Page 9 of 21
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`34.
`On February 25, 2019, at the JMP Securities Technology Conference, defendant
`Gennaro discussed changes that had been implemented during 2018 to execute sales to enterprise
`customers. Specifically, he stated:
`[Gennaro:] You have to think about the enterprise accounts that you’re working with
`in a different way and support them in a different manner than you would a Velocity
`play. And so that’s the differentiation as we moved up market in 2018 to kind of
`understand that, that is really the case and start putting in the people and activities
`in place to make that happen.
`
`[Analyst:] Give us a couple of concrete examples. So what did you have to put in,
`what kind of people or what kind of activity?
`
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`* * *
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`[Gennaro:] From the sales side, which you’ll see is, obviously, you need to have
`account reps that are dedicated to a specific enterprise and making sure that they
`understand the terminology that those companies use and the concerns that they
`would have.
`
`[Analyst:] And you didn’t have that before?
`
`[Gennaro:] Well, we had it in pockets. But this is – It just allowed us to kind of build
`out and expand it.
`
`35.
`The above statements in ¶ 34 were materially misleading because they failed to
`disclose that declining demand for Zendesk’s SaaS products, particularly in the EMEA and APAC
`regions and including enterprise customers, adversely impacted the Company’s financial prospects.
`36.
`On April 30, 2019, defendants Svane, Gomez, Wilson, Bass, Koplow-McAdams,
`Frandsen, Szkutak, Marooney, and Curtis caused Zendesk to issue a press release announcing its
`first quarter 2019 financial results. Therein, Zendesk reported that “revenue increased 40% year
`over year to $181.5 million” and “GAAP operating loss of $43.9 million.” The press release also
`increased its fiscal 2019 guidance, stating in relevant part:
`Outlook
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`As of April 30, 2019, Zendesk provided guidance for the quarter ending June 30,
`2019 and updated its guidance for the year ending December 31, 2019.
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`For the quarter ending June 30, 2019, Zendesk expects to report:
` Revenue in the range of $191-193 million
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` GAAP operating income (loss) in the range of $(44)-(42) million, which
`includes share-based compensation and related expenses of approximately
`$41 million, amortization of purchased intangibles of approximately $2
`million, and acquisition-related expenses of approximately $1 million
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`* * *
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`For the full year ending December 31, 2019, Zendesk expects to report:
` Revenue in the range of $802-810 million
` GAAP operating income (loss) in the range of $(164.0)-(160) million, which
`includes share-based compensation and related expenses of approximately
`$165 million, amortization of purchased intangibles of approximately $9
`million, and acquisition-related expenses of approximately $4 million
`
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`37.
`The same day, defendants Svane, Gomez, Wilson, Bass, Koplow-McAdams,
`Frandsen, Szkutak, Marooney, and Curtis caused Zendesk to publish a Shareholder Letter, which
`stated that the Company had started “2019 by delivering 40% revenue growth in the quarter (year
`over year), up nearly two percentage points compared to the year-over-year growth achieved for the
`first quarter of 2018.” The letter emphasized that “[d]emand for [Zendesk’s] products remains
`strong as companies around the world, large and small, seek to transform their businesses by
`adopting modern software architectures and applications” and that “growth is driven by favorable
`global market trends.” The Shareholder Letter also noted that Zendesk “had solid revenue growth
`in every region in the first quarter of 2019, with revenue up . . . 38% in EMEA [and] 39% in APAC
`. . . compared to a year ago.”
`38.
`The above statements in ¶¶ 36-37 were materially misleading because they failed to
`disclose that declining demand for Zendesk’s SaaS products, particularly in the EMEA and APAC
`regions, adversely impacted the Company’s financial prospects.
`39.
`On May 2, 2019, defendants Svane, Gomez, Wilson, Bass, Koplow-McAdams,
`Frandsen, Szkutak, Marooney, and Curtis caused Zendesk to file its quarterly report on Form 10-Q
`with the SEC for the period ended March 31, 2019 (the “1Q19 10-Q”). The report was signed by
`defendant Gomez and contained statements substantially similar to those identified in ¶¶ 31-32.
`40.
`The above statements in ¶ 39 were materially misleading because they failed to
`disclose that Zendesk’s clients had been subject to data breaches since as early as 2016.
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`C.
`The Truth Begins to Emerge
`41.
`On July 30, 2019, after the market closed, Zendesk announced its second quarter
`2019 financial results, reporting that its net losses of $54.5 million, or $0.50 per share, compared to
`$34.4 million, or $0.33 per share, reported in the prior year period. In addition, the Company’s
`revenues had increased to $194.6 million in second quarter 2019, compared to $141.9 million in the
`prior year period, representing 37% growth rate, which is well below the growth rate for the past
`eight quarters ranging between 38% and 41%. Zendesk disclosed that its sales growth in the EMEA
`and APAC regions “lagg[ed] other regions.” Specifically, growth in the EMEA region fell to 33%
`and growth in the APAC region fell to 31% in second quarter 2019, due to a mix of macro and
`operational issues. Regarding fiscal 2019 financial guidance, Zendesk expected ongoing revenue
`growth of 30% and free cash flow of $35-$45 million (compared to prior guidance of $55-$65
`million), citing increased vendor prepayments, capital expenditures, and acquisition costs.
`42.
`On this news, Zendesk’s share price fell $9.56, or 10%, to close at $83.56 per share
`on July 31, 2019, on unusually high volume.
`43.
`Then on October 2, 2019, in a blog post, Zendesk disclosed that it had experienced a
`data breach in 2016 involving 10,000 Support and Chat accounts that were activated prior to
`November 1, 2016. Specifically, Zendesk agents’ email addresses, phone numbers, and passwords
`had been accessed. A third party had alerted the Company on September 24, 2019 of the breach,
`and Zendesk had engaged an outside team of forensic experts to validate the claims and to determine
`exactly what data was accessed. Moreover, Zendesk had implemented a forced reset of passwords
`for those users that were activated prior to November 1, 2016 and who had not updated their
`passwords since that time.
`44.
`On this news, Zendesk’s share price fell $2.90, or about 4%, to close at $69.81 per
`share on October 2, 2019, on unusually heavy trading volume.
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`Case 3:20-cv-03671-JCS Document 1 Filed 06/02/20 Page 12 of 21
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`D.
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`Defendants Svane, Gomez, and Gennaro Sold Nearly $25 Million in Zendesk
`Stock While in Possession of Material Non-Public Information
`
`Svane
`45.
`Defendant Svane is the Company’s Chief Executive Officer and Chairman of its
`Board of Directors with a highly sophisticated understanding of the Company’s results and their
`import.
`46.
`As set forth herein, defendant Svane possessed material negative information which
`he knew was being concealed from investors. Defendant Svane consciously acted to exploit his
`knowledge by selling over $19.67 million of Zendesk stock to his substantial benefit, as follows:
`Date
`Shares Sold Price
`Proceeds
`2/19/2019
`50,000
`$78.61
`$3,930,410
`5/15/2019
`50,000
`$84.58
`$4,287,647
`8/15/2019
`50,000
`$74.86
`$3,748,053
`8/20/2019
`100,000
`$77.04
`$7,704,120
`
`250,000
`
`$19,670,230
`
`
`47.
`Defendant Svane thus used his fiduciary position to enrich himself and failed to
`discharge his duties by causing the Company to candidly reveal the truth of its business condition.
`Gomez
`48.
`Defendant Gomez is the Company’s Chief Financial Officer with a highly
`sophisticated understanding of the Company’s results and their import.
`49.
`As set forth herein, defendant Gomez possessed material negative information which
`she knew was being concealed from investors. Defendant Gomez consciously acted to exploit her
`knowledge by selling over $3 million of Zendesk stock to her substantial benefit, as follows:
`Date
`Shares Sold Price
`Proceeds
`2/20/2019
`500
`$78.06
`$39,030
`2/21/2019
`5,500
`$76.58
`$421,190
`3/20/2019
`5,500
`$83.54
`$459,470
`5/16/2019
`455
`$87.09
`$39,626
`5/20/2019
`5,500
`$86.51
`$475,805
`6/20/2019
`5,000
`$91.79
`$458,950
`7/22/2019
`5,000
`$91.21
`$456,050
`8/20/2019
`5,000
`$76.60
`$383,000
`9/20/2019
`4,500
`$77.53
`$348,885
`
`36,955
`
`$3,082,006
`
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`Case 3:20-cv-03671-JCS Document 1 Filed 06/02/20 Page 13 of 21
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`50.
`Defendant Gomez thus used her fiduciary position to enrich herself and failed to
`discharge her duties by causing the Company to candidly reveal the truth of its business condition.
`Gennaro
`51.
`Defendant Gennaro served as Senior Vice President of Worldwide Sales of the
`Company at all relevant times.
`52.
`As set forth herein, defendant Gennaro possessed material negative information
`which he knew was being concealed from investors. Defendant Gennaro consciously acted to
`exploit his knowledge by selling over $1 million of Zendesk stock to his substantial benefit, as
`follows:
`
`Shares Sold Price
`6,820
`$77.00
`752
`$78.06
`753
`$83.41
`753
`$82.01
`753
`$88.16
`752
`$88.42
`753
`$91.96
`753
`$77.52
`753
`$76.69
`12,842
`
`
`Proceeds
`$525,140
`$58,701
`$62,808
`$61,754
`$66,384
`$66,492
`$69,246
`$58,373
`$57,748
`$1,026,646
`
`Date
`2/11/2019
`2/20/2019
`3/19/2019
`4/17/2019
`5/17/2019
`6/19/2019
`7/17/2019
`8/19/2019
`9/18/2019
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`
`
`53.
`Defendant Gennaro thus used his fiduciary position to enrich himself and failed to
`discharge his duties by causing the Company to candidly reveal the truth of its business condition.
`VI. DAMAGES TO THE COMPANY
`54.
`As a direct and proximate result of the Individual Defendants’ conduct, Zendesk has
`been seriously harmed and will continue to be. Such harm includes, but is not limited to:
`a.
`Fees for legal and professional services incurred in connection with the
`Securities Class Action and investigation of the data breach;
`b.
`Any funds paid to settle the Securities Class Action; and
`c.
`Costs incurred from compensation and benefits paid to the defendants who
`have breached their duties to Zendesk.
`55.
`In addition, Zendesk’s business, goodwill, and reputation with its business partners,
`regulators, and shareholders have been gravely impaired. The Company still has not fully admitted
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`Case 3:20-cv-03671-JCS Document 1 Filed 06/02/20 Page 14 of 21
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`the nature of its false statements and the true condition of its business. The credibility and motives
`of management are now in serious doubt.
`56.
`The actions complained of herein have irreparably damaged Zendesk’s corporate
`image and goodwill. For at least the foreseeable future, Zendesk will suffer from what is known as
`the “liar’s discount,” a term applied to the stocks of companies who have been implicated in illegal
`behavior and have misled the investing public, such that Zendesk’s ability to raise equity capital or
`debt on favorable terms in the future is now impaired.
`VII. DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS
`57.
`Plaintiff brings this action derivatively in the right and for the benefit of Zendesk to
`redress injuries suffered, and to be suffered, by Zendesk as a direct result of breaches of fiduciary
`duty by the Individual Defendants, insider trading, and violations of Section 10(b) of the Exchange
`Act. Zendesk is named as a nominal defendant solely in a derivative capacity. This is not a collusive
`action to confer jurisdiction on this Court that it would not otherwise have.
`58.
`Plaintiff will adequately and fairly represent the interests of Zendesk in enforcing
`and prosecuting its rights.
`59.
`Plaintiff has continuously been a shareholder of Zendesk at times relevant to the
`wrongdoing complained of and is a current Zendesk shareholder.
`60. When this action was filed, Zendesk’s Board of Directors consisted of seven
`directors: defendants Svane, Wilson, Bass, Koplow-McAdams, Frandsen, Szkutak, and Curtis.
`Plaintiff did not make any demand on the Board to institute this action because such a demand would
`be a futile, wasteful, and useless act, for the reasons set forth below.
`Defendant Svane
`61.
`At all relevant times, Svane was the Company’s CEO, and therefore was not
`independent under NYSE listing rules. As an employee, Svane derives substantially all of his
`income from his employment with Zendesk, thus could not disinterestedly consider a demand for
`action that might require him to sue the directors that control his continued employment and/or
`fellow members of management with whom he works on a day-to-day basis. As alleged herein,
`Svane sold nearly $20 million in Zendesk stock while in possession of material nonpublic
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`VERIFIED STOCKHOLDER DERIVATIVE COMPLAINT
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`Case 3:20-cv-03671-JCS Document 1 Filed 06/02/20 Page 15 of 21
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`information regarding the deteriorating demand for the Company’s products. Svane personally
`issued the misleading statements alleged herein. As a result, Svane would be interested in a demand
`regarding his own wrongdoing, and demand is futile as to him.
`Defendants Wilson, Frandsen, and Szkutak
`62. Wilson, Frandsen, and Szkutak served as the members of the Audit Committee at all
`relevant times. As such, they are responsible for the effectiveness of the Company’s internal
`controls, the integrity of its financial statements, and its compliance with laws and regulations. In
`their capacities as Audit Committee members, Wilson, Frandsen, and Szkutak reviewed and
`approved the disclosures regarding the Company’s fiscal 2019 forecast. As alleged herein, Wilson,
`Frandsen, and Szkutak failed to ensure the integrity of the Company’s internal controls, allowing
`the materially misleading statements to be disseminated in Zendesk’s SEC filings and other
`disclosures. Thus, Wilson, Frandsen, and Szkutak breached their fiduciary duties and are not
`disinterested, and demand is excused as to them.
`Defendants Svane, Wilson, Bass, Koplow-McAdams, Frandsen, and Szkutak
`63.
`Svane, Wilson, Bass, Koplow-McAdams