City of Miami Fire Fighters’ and Police Officers’ Retirement Trust v. Cerence Inc.

Court: United States District Court for the District of Massachusetts
Case Number: No. 1:22-cv-10321-ADB
Class Period: 11/16/2020 - 02/04/2022
Case Leaders: John Rizio-Hamilton, Jonathan D. Uslaner
Case Team: Michael Mathai, Caitlin Bozman

This is a securities fraud class action on behalf of persons and entities who purchased Cerence Inc. (“Cerence” or the “Company”) securities between November 16, 2020, and February 4, 2022 (the “Class Period”). This action arises from Defendants’ misstatements and omissions concerning their scheme to pull forward revenues from future quarters. Defendants carried out this scheme by entering into a record number of “fixed license deals,” which Cerence has admitted were not in the best interests of Cerence or its shareholders and which, in fact, had a devastating impact on the Company’s financial condition and business. These harmful deals were personally ordered and approved by the Company’s two most senior officers – its former CEO, Sanjay Dhawan, and its former CFO, Mark Gallenberger – both of whom are defendants in this action.

Throughout the Class Period, Defendants made numerous false and misleading statements and omissions. Defendants (1) falsely claimed that they were holding fixed license revenue within the historical range; (2) misleadingly attributed the Company’s revenue growth to sources other than their pull-forward scheme; (3) mischaracterized the Company’s growth as “sustainable”; (4) misleadingly touted the strength of the Company’s pipeline, which their scheme was depleting; (5) mischaracterized minimum commitment deals as “prepays,” even though the Company received no cash up front; and (6) used knowingly false assumptions to create and reaffirm the Company’s revenue guidance.

Unbeknownst to investors at the time, the Company’s top executives pressured its employees to enter into fixed license deals that artificially inflated Cerence’s short-term revenue but harmed the Company by cannibalizing its future business at a discounted price. Defendants Dhawan and Gallenberger knew about this harm, but continued to order and approve these deals because, among other things, they enabled Dhawan and Gallenberger (i) to realize enormous amounts of performance-based executive compensation, which was tied directly to Cerence’s revenue, and (ii) to sell more than $25 million worth of their stock at prices that were inflated by their fraud.

When Defendants’ scheme began to unravel, Dhawan and Gallenberger suddenly and unexpectedly “resigned,” leaving the Company’s new CEO, Stefan Ortmanns, to clean up the mess that their fraud had created. After Ortmanns was forced to acknowledge Defendants’ deceit, the Company’s stock price collapsed, losing more than 58% of its value in just two and a half months as a result of the revelations of the fraud.

On May 12, 2022, the Honorable Allison D. Burroughs appointed the Public Employees’ Retirement System of Mississippi as Lead Plaintiff and BLB&G as Co-Lead Counsel for the potential class of investors who were harmed by Defendants’ fraud. On July 26, 2022, Lead Plaintiff filed the Amended Class Action Complaint. Defendants’ response to the Amended Complaint is due September 9, 2022.