Boynton Beach Firefighters’ Pension Fund v. Clarivate Plc

Court: United States District Court for the Eastern District of New York
Case Number: 1:22-cv-01371
Class Period: 11/10/2020 - 02/02/2022
Case Leaders: Hannah Ross, Avi Josefson, Scott R. Foglietta

On March 11, 2022, Bernstein Litowitz Berger & Grossmann LLP (“BLB&G”) filed a class action lawsuit for violations of the federal securities laws in the U.S. District Court for the Eastern District of New York against Clarivate Plc (“Clarivate” or the “Company”) and certain of the Company’s current and former senior executives (collectively, “Defendants”).  The complaint expands the class period that was asserted in a previously filed related securities class action pending against Clarivate captioned Parot v. Clarivate Plc, No. 1:22-cv-00394 (E.D.N.Y.), and is brought on behalf of investors that incurred damages on their purchases of Clarivate ordinary shares between November 10, 2020 and February 2, 2022, inclusive (the “Class Period”).

BLB&G filed this action on behalf of its client, Boynton Beach Firefighters’ Pension Fund, and the case is captioned Boynton Beach Firefighters’ Pension Fund v. Clarivate Plc, No. 1:22-cv-01371 (E.D.N.Y.).  The complaint is based on an extensive investigation and a careful evaluation of the merits of this case. To view the complaint, see the Case Documents section of this page.

Clarivate’s Alleged Fraud

Clarivate provides subscription and technology-based analytical tools and services for the discovery, protection, and commercialization of scientific research and innovations.  The complaint alleges that, throughout the Class Period, Clarivate repeatedly assured investors that the Company’s financial statements were true and accurate in all material respects and that its internal controls and procedures over financial reporting were effective, while simultaneously issuing positive financial guidance.  Indeed, even after Clarivate acknowledged in April 2021 that it had a material weakness in its internal financial controls and restated its 2020 annual report in May 2021 due to improprieties in the Company’s accounting, Clarivate limited the scope of that material weakness to its accounting for warrants issued in connection with the 2019 business combination through which Clarivate became a public company, while reassuring investors that the remainder of its controls were effective.

In reality, however, the Company improperly accounted for nearly $200 million in stock-based compensation expenses as part of its accounting for its October 1, 2020 acquisition of intellectual property software company, CPA Global (the “CPA Global Transaction”), and, as a result, Clarivate significantly overstated, among other things, its net income for the year ended December 31, 2020 and the nine months ended September 30, 2021.  In addition, because Clarivate’s earnings guidance for 2021 was based on the improper accounting for the stock-based compensation plan that Clarivate assumed as part of the CPA Global Transaction, the Company had no reasonable basis for issuing the guidance.  Moreover, Clarivate knew, or at a minimum, recklessly disregarded, that it lacked adequate and effective disclosure controls and procedures as a result of systemic material weaknesses in the Company’s internal control over financial reporting.  As a result of these misrepresentations, Clarivate shares traded at artificially inflated prices during the Class Period.

The truth began to emerge on December 27, 2021, when Clarivate revealed that its financial statements for the year ended December 31, 2020, and the quarterly periods ended March 31, June 30, and September 30, 2021 “should no longer be relied upon because of an error in such financial statements” and would need to be restated.  Specifically, Clarivate revealed that it had improperly included $185 million in expenses in connection with stock compensation awards to eligible CPA Global employees as part of the acquisition accounting for the CPA Global Transaction, instead of recognizing expenses for the majority of those awards as stock-based compensation charges over the 12-month vesting period from October 1, 2020 to October 1, 2021.  The Company also disclosed that it expected “to report an additional material weakness following an analysis of the cause of these restatements.”

Later that day, shortly before the market closed, StreetInsider.com published an article reporting that an analyst at Stifel had lowered his price target on Clarivate from $32.00 per share to $29.00 per share.  The analyst also noted the suspicious timing of Clarivate’s revelations of its improper accounting for the CPA Global Transaction, which came less than one month after Clarivate’s prior CFO resigned, and determined that the Company’s accounting improprieties are likely to impact Clarivate’s previously reported earnings and cash flow.

Then, on February 3, 2022, Clarivate filed restated financials for the year ended December 31, 2020 and for the three quarters ended March 31, June 30, and September 30, 2021, which impacted, among other things, the Company’s GAAP income from operations, net income, and earnings per share.  Clarivate also disclosed that its net income for 2021 “will be significantly below” its previously issued guidance “due to the impact of the restatements.”  Indeed, over the first three quarters of 2021, Clarivate incurred a net loss that was nearly double what it previously reported to investors.  Moreover, the Company admitted that “material weaknesses in internal control over financial reporting existed as of December 31, 2020.”  As a result of these disclosures, the price of Clarivate shares declined precipitously.

The filing of this action does not alter the previously established deadline to seek appointment as Lead Plaintiff.  Pursuant to the January 24, 2022 notice published in connection with the Parot action, under the Private Securities Litigation Reform Act of 1995, investors who purchased or otherwise acquired Clarivate securities during the Class Period may, no later than March 25, 2022, seek to be appointed as Lead Plaintiff for the Class.  Any member of the proposed Class may seek to serve as Lead Plaintiff through counsel of their choice, or may choose to do nothing and remain a member of the proposed Class.

If you wish to discuss this action or have any questions concerning this notice or your rights or interests, please contact Scott R. Foglietta of BLB&G at 212-554-1903, or via e-mail at scott.foglietta@blbglaw.com.