April 13, 2020
A new class action against Zoom Video Communications, Inc., demonstrates the wide scope of businesses affected by the Coronavirus pandemic. As everyone knows, Zoom sells software that allows users to conduct meetings by video. Usage has stepped up dramatically since more people have begun working remotely in response to the pandemic and stay-at-home orders. The uptick in usage has focused attention on alleged flaws in the Zoom software that allegedly permit hackers to snoop on Zoom meetings. On April 8, an investor filed a class action lawsuit in federal district court in San Francisco charging that Zoom, its CEO, and its CFO defrauded purchasers of Zoom stock by failing to disclose the alleged software flaws. In the complaint, plaintiff Michael Drieu alleges that “Defendants made materially false and misleading statements,” including statements that misrepresented or failed to disclose that “Zoom had inadequate data privacy and security measures; that its video communications service “was not end-to-end encrypted”; that users of Zoom’s communications services were consequently at an “increased risk of having their personal information accessed by unauthorized parties, including Facebook”; and that “usage of the Company’s video communications services was foreseeably likely to decline when the foregoing facts came to light . . . .” Plaintiff alleges that Defendants’ conduct violated provisions of the federal securities laws that generally prohibit fraud in the purchase or sale of securities. The complaint may be found at https://www.documentcloud.org/documents/6827784-Zoom-shareholder-suit.html.
We can expect to see more federal securities actions against businesses—and their officers and directors—for allegedly failing to alert investors to the Coronavirus issue or its effects. Affected officers and directors should consult with counsel to determine if their Directors & Officers Liability Policies cover such claims.