Shareholder's' Derivative Lawsuit Claims Oracle Management Knew of Predatory Audit Tactics and Misled Public
In a shareholder’s derivative lawsuit filed on May 6, 2019 in the Northern District of California, the City of Providence has accused the top echelons of Oracle’s management and its board of directors, of making materially false and misleading statements about the growth of Oracle’s cloud business and the simultaneous repurchase of common stock at inflated values. The verified 110-page complaint filed by the Cotchett, Pitre & McCarthy law firm, relies heavily on a March 8th Consolidated Class Action Complaint filed in the In Re Oracle Corporation Securities Litigation, and sets out in meticulous detail the alleged misconduct relating to Oracle’s abuse of its audit rights and Oracle’s use of predatory audit tactics. Essentially the Complaint alleges that Oracle License Management Services (“LMS”) improperly used software audits against Oracle customers to come up with bogus audit findings, which Oracle Sales could then leverage to force customers into Oracle cloud purchases. Oracle management in turn would tout these sales to shareholders and the public, without disclosing that in many instances the Oracle customers never wanted or needed the products, but only bought them to get out from under the audit findings. The Complaint alleges that the purpose of this elaborate scheme was to provide Oracle management with ammunition so that it could falsely claim that Oracle cloud sales were experiencing phenomenal growth thereby misleading the market.
The Complaint pleads specific facts, which will be familiar to many Oracle customers who have experienced an Oracle audit. According to the complaint, in the typical “Audit, Bargain, Close” or “ABC deal”, Oracle’s LMS “would audit an existing on-premises client for violations of the software license and present the client with a hefty bill – say, $10 million. Oracle sales would then intervene, offering to reduce the penalties significantly – by, for instance, $4 million – if the customer purchased $2 million in cloud subscriptions. These customers, who neither wanted nor needed the cloud products, “purchased” a cloud subscription simply to save money on audit penalties, and, of course, almost never renewed those subscriptions. The Officer Defendants caused Oracle to misleadingly report these sham “sales” as cloud revenue, highlighting them as evidence of explosive business growth, when, in fact, they were nothing of the sort”.
Oracle customers who have undergone audit may also be able to relate to the following allegations:
“To start, Oracle installed its main on-premises products with extra options and management packs enabled by default, but did not inform its customers that these features had been installed and must be disabled in order to avoid license overages. Once a customer fell into this trap, Oracle’s sales and LMS teams worked in a highly coordinated fashion to audit the client for its license violations and push cloud products”.
The complaint devotes a whopping 44 pages to setting out statements made by various high-level officers and directors of Oracle, which the complaint contends shows that Oracle management knew of and encouraged these improper practices and intentionally misled the public by repeatedly claiming that the growth in cloud sales was due to legitimate business factors and not fueled by improper audit and sales tactics.
If you believe your company has been forced into an unwanted cloud purchase arising out of an Oracle audit, you may have legal remedies. If you are currently under audit, and have been pressured to buy cloud, you may have legal options. Please contact firstname.lastname@example.org if you would like to discuss your possible claims.
Tactical Law Group LLP is continuing to monitor the litigation. Check back here for periodic updates. The case is City of Providence v. Lawrence Ellison, et. al., Case Number 5:19-cv-02448-NMC.
You may read City of Providence’s Complaint by clicking below.
Pam Fulmer of Tactical Law