VMware settles securities fraud class suit with $102.5M payout
The case relates to an alleged creation of an artificial sales backlog to hide slowing sales between August 2018 and February 2020.
Published on 21st October 2024
Old accusations of securities fraud continue to dog VMware, with the virtualization juggernaut agreeing to pay $102.5 million to settle a shareholder suit over its alleged creation of an artificial sales backlog to hide slowing sales.
Court documents filed recently indicate that VMware and lawyers for a massive plaintiff class – anyone who bought or sold some of an estimated 54.9 million VMware shares between August 24, 2018 and February 27, 2020 – have agreed to resolve the case with the sizable payout, around $75.6 million of which will end up going to class members after fees are deducted.
VMware, naturally, hasn’t accepted responsibility for the matter, with court documents making plenty of mention of the company’s continued denial of the allegations.
If the dispute sounds familiar, that’s because it’s nearly identical to a case the US Securities and Exchange Commission settled with VMware in September 2022. In that instance, the SEC accused VMware of misleading investors by rolling revenue into future quarters by postponing product delivery.
“VMware began delaying the delivery of license keys on some sales orders until just after quarter-end so it could recognize revenue from the corresponding license sales in the following quarter,” the SEC said in its deal with VMware, which issued a similar denial of liability for the matter.
The agency only managed to squeeze $8 million out of VMware in 2022, though, making this settlement nearly 13 times larger, lawyers for the plaintiffs said.
“With our client’s leadership, we were able to obtain a significant recovery for the class,” said lead case attorney Scott H. Saham.
According to the settlement, the case was resolved in mediation after a video conference that included presentations of evidence gleaned from some 825,000 pages of documents and a series of depositions. The settlement was reportedly reached as both sides were preparing to exchange discovery reports.
VMware didn’t get specific in its responses to our questions, simply asserting that the facts still show it did nothing wrong.
“The facts are clear: The disclosures were appropriate, and we look forward to resolving this legacy matter involving certain VMware disclosures from more than four years ago — well before the Broadcom acquisition,” a Broadcom spokesperson responded.
And how's that acquisition working out for you?
Broadcom, which finalized its $69 billion purchase of VMware from Dell late last year, seems to have a lemon on its hands.
Aside from coming with the legal baggage, Broadcom also bought a company it admitted needed some serious transformation. Instead of doing things to reassure investors, commercial alterations have done the opposite.
A licensing restructure, for example, has been costly for some VMware customers who didn’t jump ship before the acquisition, with price hikes announced alongside plans to kill perpetual licenses to force customers onto those new, more expensive subscriptions.
That has led to a lawsuit from AT&T, a VMware customer, over breach of contract for Broadcom allegedly not honoring its renewal option when perpetual licenses were eliminated. According to documents filed in that case, prices offered to AT&T by Broadcom after the licensing overhaul were 1,050 percent higher than what it was previously paying.
Subscription price hikes, lost licenses, and uncertainty have led to more than half of VMware customers reportedly considering jumping ship to a rival, though we note that number comes from Civo, a VMware rival.
