Grabar Law Office has filed a stockholder derivative action, behalf of nominal defendant UiPath, Inc. (“UiPath” or the “Company”). The lawsuit is brought against current and former members of UiPath’s Board of Directors (the “Board”) and specific executive officers, Daniel Dines, Ashim Gupta, Philippe Botteri, Carl Eschenbach, Michael Gordon, Kimberly L. Hammonds, Thomas Mendoza, Daniel Springer, Laela Sturdy, Jennifer Tejada, and Richard P. Wong (the “Individual Defendants”) with the aim of addressing the breaches of fiduciary duties and violations of federal law committed by the Individual Defendants.
This shareholder derivative action brought for the benefit of UiPath to redress breaches of fiduciary duty by certain officers and members of the Company’s Board between at least April 21, 2021 and March 30, 2022 (the “Relevant Period”).
The Company’s licensing revenue is derived from the sale of the company’s software licenses, typically offered on annual or multi-year terms. Whereas, the Company’s maintenance and support revenues are comprised of fees generated from technical support services provided to customers. Lastly, services and other revenue includes fees generated by the Company from building automation for customers, educating customers, and providing training to customers.
On April 21, 2021, UiPath successfully concluded its initial public offering (“IPO”), releasing more than 27.5 million shares at a price of $56 per share, resulting in gross proceeds exceeding $1.5 billion. In the period leading up to the IPO and the subsequent months, the Individual Defendants exaggerated UiPath’s total addressable market (“TAM”) and presented misleading information about the demand for the company’s software products. Contrary to these assertions, the company was experiencing a decline in market share to well-established enterprise software providers such as Microsoft, IBM, and Salesforce, who seamlessly integrated automation software into their existing platforms. Additionally, UiPath faced competition from cost-effective, low-code automation solutions, exemplified by Microsoft’s Power Automate.
Notably, the Board strategically structured the IPO to exempt board members and company insiders from a conventional lock-up period. This arrangement permitted insiders to promptly sell their shares.
Rather than disclose these adverse demand and competition trends, the Individual Defendants enacted a scheme to conceal the diminishing demand for UiPath’s software. First, UiPath implemented widespread discounts to temporarily enhance sales. As this strategy was unsustainable, the Company then began introducing “ramping” contracts involving relatively modest initial RPA commitments which could ostensibly grow over time. Due to the unique way in which the Company reported annualized revenue and growth figures, these ramping contracts created illusory demand growth.
Consequently, both preceding and succeeding the IPO, the Defendants engaged in a concerted effort to artificially inflate the Company’s stock price, facilitating Company insiders in maximizing their financial gains. This stratagem proved notably successful. Subsequent to the IPO, Company insiders liquidated 18,853,999 shares of Company common stock, yielding returns totaling $1.055 billion. The trend persisted post-IPO, with Defendants Dines, Gupta, Botteri, and Wong collectively selling 511,641 shares of Company common stock for returns amounting to $26,754,082 between November 2021 and March 2022.
The revelation of the fraudulent scheme unfolded gradually through a sequence of corrective financial disclosures commencing in September 2021. Following UiPath’s disclosure of underwhelming financial results in September 2021 and March 2022, the Company’s stock witnessed a significant decline, reaching a nadir of $22 per share. This marked a stark contrast to the Relevant Period’s peak price of $90 per share, representing a decline of over 75%.
Throughout the Relevant Period, Defendants made materially false and/or misleading statements and omitted material adverse facts about the Company’s business. They failed to disclose that: (i) a pre-IPO discounting program temporarily boosted revenue and its annualized revenue run rate (or “ARR”) metrics but risked future sales, eroded margins, and increased client churn; (ii) the actual total addressable market was smaller than portrayed, as many surveyed companies didn’t require UiPath’s high-cost, high-functionality automation products; (iii) the Company lost customers to competitors like Microsoft, ServiceNow, SAP, Salesforce, IBM, and others integrating automation into existing platforms; (iv) customer losses were exacerbated by the availability of lower-cost, low-code automation software from vendors like Microsoft’s Power Automate; (v) strained relationships with partners led to a loss of channel sales; (vi) the Company lacked internal controls; and as a result, (vii) Defendants’ statements about the Company’s business were materially false and misleading or lacked a reasonable basis.
Moreover, throughout the Relevant Period, Defendants made false statements, failing to disclose that: (i) the “ramping” model and emphasis on the ARR metric created a misleading impression of client demand and revenue and ARR growth, as lower initial commitments induced customers who wouldn’t make larger commitments later; and (ii) the use of this model was partly due to UiPath’s inability to sign customers for longer-term engagements without substantial discounting.
The Individual Defendants’ misconduct has directly and proximately caused substantial financial harm to the Company. This includes the expenses related to defending against potential class-wide liability in the Securities Class Action, along with additional damages such as reputational harm and the loss of goodwill.
If you would like to learn more about this matter, you are encouraged to contact us at [email protected], or call Joshua Grabar at 267-507-6085.
