Carbonite Facing Proposed Securities Suit Over Backup Service Product’s ‘Poor Reception’

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Carbonite, Inc. and its CEO and CFO have been named in a proposed class action filed by a stockholder who claims the software company lied to investors about the quality of a cloud-based backup service product launched in October 2018.

The suit centers around Carbonite, Inc.’s Server Backup VM Edition product that was purportedly designed to allow managed service providers (MSPs) to manage their clients’ virtualized IT systems “both locally and in their own cloud.” The defendants allegedly represented to investors that the new product would “meaningfully” add to the company’s financial performance for fiscal year 2019.

The case alleges that despite these representations, Carbonite’s Server Backup VM edition was “of poor quality and technologically flawed,” which prompted negative customer reviews and complaints following the product’s launch. Equally problematic, the lawsuit states, was the market’s reaction to the product’s poor reception. The VM edition’s reputation, according to the case, was a “disruptive” factor in Carbonite’s sales organization and reportedly blocked the company from closing several large deals during 2019.

Amid poor reviews and less-than-stellar market reaction, the defendants allegedly continued to represent to investors that Carbonite would meet its revenue goals while looking forward to promising financial results. The lawsuit argues that the company’s executives were motivated to mislead investors with regard to Carbonite’s financial health in part because they sought to sell their own shares of Carbonite stock at inflated prices. According to the complaint, Carbonite directors gained nearly $3 million in gross proceeds by selling their personally held shares during the class period.

On July 25, 2019, however, Carbonite announced that it was discontinuing its Server Backup VM Edition product and “dramatically” lowered its financial projections for fiscal years 2019 and 2020, the lawsuit states. In response, the case says, Carbonite’s stock price fell more than 24 percent on “extremely heavy trading volume,” injuring stockholders.

The lawsuit seeks reparation for all purchasers of Carbonite common stock between February 7, 2019 and July 25, 2019.