PS Lit Recovery, LLC v. Pegasystems Inc.
1:24-cv-12996
D. Mass.Jan 8, 2026Check TreatmentDocket
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 1 of 45
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
PS LIT RECOVERY , LLC
Plaintiff ,
v. Civil Action
No . 24 -1 2996 - WGY
PEGASYSTEMS IN C.,
ALAN TREFLER,
and KENNET H STILLWELL
Defendants .
YOUNG , D.J. January 8 , 2026
MEMORANDUM & ORDER
I. INTRODUCTION
This action was brought by PS Lit Recovery, LLC ("PS Lit")
-- an assignee of claims from Pegasystems Inc . ( " Pega ") common
stock purchasers that were advised by Praesidium Investment
Management Comp any , LLC, Compl. , ECF No. 1, ~ 33 , on the heels
of the class act i on case City of Fort Lauderdale Police &
Firefighters' Retirement Systems v . Pegasystems Inc., 683 F .
Supp . 3d 1 2 0 ( D. Mass. 2023) ("Fort Lauderdale") . Fort
Lauderdale was decided against the backdrop of the Vi r gin i a
Circuit Court decision in App i an Corp. v . Pegasystems Inc~,
Civil Action No. 2020 - 07216 (Circuit Court of Fairfax County ,
Virgin i a) (the " Virginia Action "), ordering Pega to pay Appian
Corporation ("Appian") over $2 , 000 , 000 ,00 0 for willfully and
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 2 of 45
maliciously misappropriating Appian ' s trade secrets. That
judgment had since been reversed and remanded by the Virginia
Court of Appeals in Pegasystems Inc . v . Appian Corp ., 904 S . E . 2d
247 , 284 (2024) , appeal granted (Mar . 7 , 2025) (hereinafter
"Virginia Court of Appeals decision")) . The defendants in this
case : Pega , Alan Trefler ("Trefler") , and Kenneth Stillwell
(" Stillwell") (Trefler and Stillwell jointly referred to as " the
Individual Defendants") contend that this development undermines
the conclusions made by this Court in Fort Lauderdale , which led
to the denial of Pega ' s motion to dismiss (except, with respect
to defendant Stillwell , the motion to dismiss was granted
without prejudice) . Fort Lauderdale , 683 F . Supp . 3d at 125 .
This Court has accordingly agreed to look afresh at the
allegations made by PS Lit in this case .
For the reasons stated below , defendants Pega , Trefler and
Stillwell ' s Motion to Di smiss the Complaint ("Defs .' Mot .
Dismiss " ) , ECF No . 26, is hereby DENIED in part and ALLOWED in
part .
II. PROCEDURAL HISTORY
PS Lit filed this lawsuit against Pega , Trefler and
Stillwell on December 4, 2024, following the class settlement
opt - out period in Fort Lauderdale , 683 F. Supp. 3d 120. The
compla i nt here alleges the same two counts as the class action
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in Fort Lauderdale : violations of Section l0(b) of the Exchange
Act , 15 U. S . C . § 78j (b) and Rule l0b - 5 promulgated thereunder ,
17 C.F.R . § 240.l0b-5 (count I) , and violations of Section 20(a)
of the Exchange Act , 15 U. S . C. § 78t(a) (count III) . In
addition , PS Lit alleges scheme liability under Rule l0b - 5 (a)
and (c) (count II) , common law fraud (count IV) , and common law
negligent misrepresentation (count V) . See Compl .
On March 13 , 2025 , the Defendants filed a motion to dismiss
all five counts of the complaint. Defs.' Mot . Dismiss , ECF No.
26. The parties have fully briefed the issues . Defs .' Mem .
Supp. Mot . Dismiss ("Defs .' Mem ." ) , ECF No. 27 ; PS Lit
Recovery ' s Opp ' n Defs .' Mot . Dismiss (" Pl .' s Opp ' n " ) , ECF No .
31 ; Defs .' Reply Br. Supp. Mot. Dismiss Compl. (" Defs .' Reply") ,
ECF No. 37 .
This Court held a hearing on the Defendants ' motion to
dismiss on July 22 , 2025. Elec . Clerk ' s Notes , ECF No. 40.
After hearing arguments of counsel , the Court DENIED the motion
as to improper assignment and ALLOWED the motion as to count II
(Rule 10b- 5(a) and (c) scheme). The Court also ruled the
allegations with respect to Stillwell are still insufficient ,
but are adequate as to count III (Section 20(a)) . The Court
took the remainder under advisement . See id .
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III. Facts Alleged
The allegations bro u ght here by PS Lit mirror, but also
expand on , the same set of operative facts as in Fort
Lauderdale, 683 F. Supp. 3d at 126-128.
Pega, founded in 1983, offers a "low code " software
app li cat i o n development p l atform that al l ows customers to build
and tailor applications as per their specific business needs .
Compl. ~~ 4 3-44. The defendant Trefler i s , and h as been, Pega's
CEO and Ch ai rman of the Board of Directors s ince the company ' s
founding. Id. ~ 40. The defendant Stil lwell joined Pega in
July 20 16 as Senior Vice President, Chie f Financia l Officer
("CFO"), and Chief Administrative Officer ("CAO") and was
promoted to Chief Operating Off i cer ("COO") in April 2021 . Id .
~ 41. One of Pega's main competitors o n the business process
management ("BPM") market is Appian. Id. ~ 45.
Beginning 2012 , Pega engaged in a ser i es of corporate
int e lligen ce activities, al l egedly with intent to mi sappropriate
Appian's trade secrets. Id. ~ 6. Th ese activities can be
broken down int o two dist inct phases: 1) " Project Crush " (2012 -
2014) , and 2) "T eardown " (2019-2022). Id . ~~ 6 , 8 , 11, 53 , 63 .
A. "Project Crush"
Early in 2012, Pega hired Youyo n g Zou (" Zou " ) to conduct a
ser i es o f actions, code n a med "Project Crush ", perta inin g to
Appian software, which alleged l y included "(i) creat[ing] videos
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of himself accessing Appian ' s platform ; (ii) covertly
download [ing] ... Appian's software documentation for Pega;
(iii) showcas[ing] for Pega the functionality of Appian ' s
platform ; (iv) suppl[ying] Pega with confidential information
regarding the strengths and limitations of Appian's software ;
(v) demonstrat[ing] to Pega how to use and navigate Appian ' s
platform; and (vi) answer[ing] Pega's detailed technical
questions about Appian ' s platform." Id. i 53 .
Based on the allegations , Pega was aware of the illicit
nature of these activit i es and attempted to conceal them : Zou
was hired through a third party - KForce - that also paid Zou,
id. ii 6-7, 51-52 , 251 ; and he was internally referred to as
"Matt " to hide his identity. Id . i 64 .
Personnel involved in "Project Crush " included CEO Alan
Trefler; Pega's Chief Product Officer ("CPO") Kerim Akgonul
("Akgonul"); Chief Technology Officer ("CTO") Don Schuerman
(" Schuerman "); Chief of Cli ents and Markets ("CMM " ) Leon Trefler
(defendant Trefler's brother) ; Director of Product Marketing
John Petronio ("Petronio"); Director of the Office of the CTO
Ben Baril ("Baril"); Head of Product Marketing Douglas Kim
(" Kim" ) ; and Vice President of Product Management Steve Bixby
(" Bixby " ) . Id. ii 10, 49 , 65 , 71 , 76 .
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B. "Teardown"
In 20 1 9 , Pega initiated an operation "'similar' to ' Project
Crush ,' but ' broader [in] scope '". Id. 1 77 (inte rn al citation
omitted) . Unable to find a su it able contractor , Pega decided to
act on i ts own by accessing the App i an software t hr ough free
trial li censes and record reference materials. Id. 11 80 - 83 .
Th ese li censes were obtained through, among other things, using
fake names, front a n d fake compan i es , id . 11 91 - 109 , or
businesses o f Pega employees ' s ignifi cant others , id. 1 84 .
Pega's senior executives a nd officers were aware of these
act i ons , id. 1 79 ; facts a ll eged by PS Lit further indicate
awareness of the illicit character of this operat i on , id. 11 83 -
85 , 89.
C. The Virginia Action
On May 29 , 2020 , App i an fil ed a lawsuit aga in st Pega,
alleging Pega's engagemen t in "unl awful schemes . [ t h at]
i nvo lved stealing Appian ' s trade secrets and conf idential
i nformation and then using them to damage Appian ' s business and
reputation, and to stea l Appian's customers and potential
c ust omers" which "[ i]nvo l v [ed] personnel at Pegasystems up to
and including Pegasystems ' CEO and Founder , Al an Trefler , and
ot h er high-ranking Pegasystems executives ." Id. 11 13-14
(emph asis omi tted) . Appian ini tial l y cla imed it " suffered and
will suffer substantial monetary damages in an amount t h at will
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exceed $90 million", id. 1 192 (emphasis omitted) ; it eventually
amended its complaint o n February 11 , 2022 , seeking
approximately $3 billion . Id . 11 162, 197.
In response to that development , Pega -- in its Report on
Form 10 - K filed on February 16, 2022 -- for the first time made
a n exp ress and detailed me nti on of the Virgini a Action. 1 Id . 11
20 , 263 . In the same report , Pega stated that: Appian's claims ,
"are without merit," Pega h as " strong defenses to these c l aims ,"
and "any alleged damages claimed by Appian are not supported by
the necessary legal standard." Id . 1 125 (emphasis omitted) .
On May 9 , 2022 , the jury return ed a un a nimou s verdict in favor
of Appian, finding that Pega willfully and maliciously
misappropriated Appian 's trade secrets in violation of the
Virginia Uniform Trade Secrets Act ("VUTSA") and a violation of
Virginia Computer Crimes Act ("VCCA") provisions, and awarded
Appian $2 , 036,860,045 in damages (before int erest and attorney ' s
fees). Id. 11 127-28 .
Pega appealed and t h e Virginia Court of Appeals held that,
while Pega was not entit l ed to judgement as matter of law , the
trial court " committed a series of errors " that warranted a
10-Q and 10 - K forms filed by Pega between May 29 , 2020 ,
and February 16, 2022 , contained a statement that "[ Pega] ha[s]
rece i ved , and may in the future receive, notices that claim
[Pega] ha[s] misappropriated , misused , or infringed other
parties ' intellectual property rights. " Compl ., 1 153.
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reversal of the judgement as to the VUTSA claims and a remand
for a new trial . Pegasystems Inc. , 90 4 S . E.2d at 284 ; Compl.,
11 132-134. The Virginia Supreme Court has since agreed to hear
the petition seeking to reinstate the verdict. Pl .' s Opp ' n , ECF
No . 31 , at 7; Appian Corp . v . Pegasystems , Inc., No. 240736 ,
2025 Va . LEXIS 12 , at *1 (Mar . 7 , 2025) .
In response to Pega ' s February 16, 2022 disclosure of the
Virginia Action , Pega 's stock price dropped approximately 15.62 %
on February 17 , 2022 . Pega ' s stock price gradually diminished
in value between the commencement of the Virginia Action trial
(March 21 , 2022) and again the day before the verdict was
announced (May 9 , 2022) from $79 . 57 to $65.93. It dropped by
approximat ely 20 % on the day the verdict was announced (May 10,
2022) , and another 8 % the day after . Compl ., 11 263 - 2 66 .
IV. ANALYSIS
A. Pleading Standard
To withstand a motion to dismiss, PS Lit ' s complaint must
"state a claim upon which relief can be granted .... ", Fed . R.
Civ. P. 12 (b) (6), meaning , it must include sufficient factual
allegations that , accepted as true , "state a claim to relief
that is plausible on its face ." Bell Atlantic Corp . v . Twombly ,
550 U. S . 544 , 570 (2007) . The Court must " accept well-pleaded
factual allegations in [PS Lit ' s Compl.] as true and view all
reasonable inferences in [its] favor. " Premca Extra Income Fund
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LP v. iRobot Corp. , 763 F. Supp . 3d 1 2 1 , 146 (D . Mass . 2025)
(quoting Zhou v . Desktop Metal , Inc. , 120 F. 4th 278 , 287 (1st
Cir . Oct . 28, 2024)). Thus, under this standard, the Court
" draw[s] every reasonable inference" in favor of the plaintiff ,
Berezin v . Regency Sav . Bank, 234 F.3d 68, 70 (1st Cir. 2000) ,
but disregards statements that " merely offer legal conclusions
couched as fact or threadbare recitals of the elements of a
cause of action ," Ocasio - Hernandez v . Fortuno-Burset , 640 F.3d
1 , 12 (1st Cir . 2011) (brackets , ellipsis , and quotations
omitted) .
"To state a claim under section l0(b) , a complaint must
allege: ' ( 1) a material misrepresentation or omission ; (2)
scienter ; (3) a connection with the purchase or sale of a
security ; (4) reliance ; (5) economic loss ; and (6) loss
causation .'" Quinones v . Frequency Therapeutics , Inc. , 106 F .
4th 17 7, 182 (1st Cir . 2024) (quoting In re Biogen Inc. Sec .
Litig ., 857 F . 3d 34 , 41 (1st Cir . 2017)) . Finally , because PS
Lit brought securities as well as state fraud claims , the
allegations in the complaint must meet the standard under
Federal Rule of Civil Procedure 9(b) and the "heightened
pleading requirements " imposed on private securities litigation.
Mississippi Pub. Employees ' Ret . Sys . v. Boston Scientific
Corp ., 523 F . 3d 75 , 85 (1st Cir. 2008) . Under Rule 9(b) , PS Lit
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is requ i red to plead with particularity the circumstances
[co n stituting] fraud. Zhou , 120 F . 4th at 287 .
Th e sufficiency of pleadings under Section l0(b) and Rule
10b- 5(b) claims , mirroring the ones brought here by PS Lit , have
already been the subject of an analysis by this Court in Fort
Lauderdale. Now , Pega challenges the conclusions made in Fort
Lauderdale -- which there led to a denia l of a motion to dismiss
-- arguing that it was decided " on the heels" of a Virgin ia
state court ' s decision in Appian , which was since reversed and
remanded for a new trial by the Virginia Court of Appeals
decision. See Defs .' Mem . at 1.
As this Court remarked during the motion hearing , it does
not g i ve any weight to the legal determinations made by the
Virg ini a courts ; the Virginia Court of Appeals decision ,
however, by reversing and remanding the trial court ' s dec i sion
that stood whil e this Court was deciding Fort Lauderdale , calls
for a renewed analysis of the sufficiency of the allegat ions
against the backdrop o f the law is it now stands. See Tr. Mot .
Hr'g, ECF No. 41 at 10, 1 7.
B. False and Misleading Statements
To survive a motion to dismiss , a securities comp laint must
show that "defendants made a materially fals e or misleading
statement or omitted to state a materia l fact necessary to make
a statement not misleading ." Ganem v . InVivo Therapeutics
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Holdings Corp. , 845 F . 3d 447 , 454 (1st Cir . 2017) (quoting
Geffon v. Micrion Corp. , 249 F . 3d 29, 34 (1st Cir . 2001)). The
Private Securities Litigation Reform Act ("PSLRA") "mandates
that the complaint must 'specify each statement alleged to have
been misleading, [and] the reason or reasons why the statement
is misleading.'" State Tchrs. Ret. Sys. of Ohio v . Charles
River Lab'ys Int 'l, Inc., 152 F.4th 1 , 9 (1st Cir . 2025)
(quoting 15 U.S.C . § 78u-4 (b) (1)).
Under Rule 10b- 5(b), it is unlawful to "make any untrue
statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light of
the circumstances under which they were made, not misleading",
in connection with the purchase or sale of a security. Zhou,
120 F.4th at 292 (quoting 17 C . F . R. § 240.10b-5(b)). "A fact or
omission is material if ' a reasonable investor would have viewed
it as having significantly altered the total mix of information
made available .'" Id. (quoting Ponsa-Rabell v . Santander Sec.
LLC , 35 F.4th 26 , 33 (1st Cir. 2022)) . "[W]hether a statement
is ' misleading ' depends on the perspective of a reasonable
investor." Omnicare , Inc. v . Laborers Dist. Council Constr.
Indus . Pension Fund , 575 U.S. 175, 186 (2015).
Rule 10b-5(b) does not , however , cover pure omissions
only "half-truths." Macquarie Infrastructure Corp . v. Moab
Partners , L. P ., 144 S . Ct . 885 , 891 , (2024). The same ,applies
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to Sect i on l0(b) . See Zhou , 120 F.4th at 292 . Thus , it "bears
emph asis that§ l0(b) and Ru l e 10b-5(b) do not create an
affirmative duty to disclose any and a l l material information .
Disclosure is required under these provisions only when
necessary ' to make . . statements made , in the light of the
c i rcumstances under which they were made , not misleading. ' "
Macquar i e , 1 44 S . Ct . 885 , 891 (2024) (qu oting Matrixx
I n itiat i ves , Inc . v . Siracusano , 563 U.S . 27 , 44 (2011)) .
1. Materially Misleading Disclosures--Reassurances
PS Lit points to Pega ' s statements in i t s Report on Form
10-K for fiscal year 2021 (fi l ed on February 16 , 2022 , and
signed by Trefler and Stillwell) . In this 2021 report , Pega
stated "[ it] believe[s ]" that the claims asserted in the
Virgin i a Action were 'wi thout merit ,' Pega had ' strong defenses '
t o t h e claims , and that the appropriate causation standard did
not support Appian ' s damages claim as false and/or misleading ,
especially in light of " their years-long scheme to
misappropriate Appian ' s trade secrets ." Compl . !! 21 , 125 , 163 -
64 . Pega argues to the con t rary that t h ese statements " were
neither objectively nor s u bjectively false ." Defs .' Mem . at 8 .
This Court previous l y ruled these statements to be
actionable as they " did not ' fairly align ' with [Trefler ' s]
awareness of , involvement in , and direction of Pega ' s espionage
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campaign against Appian ." Fort Lauderdale , 683 F . Supp . 3d at
135 (quoting Omnicare , 575 U. S . at 189) . This Court further
pointed out that "[g]iven the way that statement was couched and
the identity of the speaker , a reasonable investor could
justifiably have understood Trefler ' s message that Appian ' s
claims were ' without merit ' as a denial of the facts underlying
Appian ' s claims -- as opposed to a mere statement that Pega had
legal defenses against those claims ." Id .
Now , Pega contends that the Virginia Court of Appeals
decision " undermines any assertion that Defendants ' opinions
were objectively false " and " validates Defendants ' subjective
belief that Appian ' s claims were ' without merit ', . . . that Pega
had ' strong defenses' ", and that "the appropriate causation
standard did not support Appian ' s damages claim. " Defs .' Mem .
at 9- 10 . The Court rejects this argument.
In general , securities law assumes an ex ante perspective
of the statements made : "just as a statement true when made does
not become fraudulent because things unexpectedly go wrong, so a
statement materially false when made does not become acceptable
because it happens to come true . " Pommer v . Medtest Corp. , 961
F . 2d 620 , 623 (7th Cir . 1992) . Such an approach is appropriate
when dealing with statements of fact; less so when it involves
to the "proper interpretation of data " where the analysis shifts
towards the question whether such interpretation was rational or
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reasonable . In Re Philip Morris Int ' l Inc . Sec . Litig ., 89
F . 4th 408 , 422 (2d Cir . 2023) (quoting Tongue v . Sanofi , 816
F.3d 199 , 214 (2d Cir . 2016)) When it comes to opinions , "an
investor cannot state a claim by alleging only that an opinion
was wrong ; the complaint must as well call into question the
issuer ' s basis for offering the opinion." Omnicare , 575 U.S . at
194 .
To be specific : The investor must identify particular
(and material) facts going to the basis for the issuer ' s
opinion -- facts about the inquiry the issuer did or did
not conduct or the knowledge it did or did not have --
whose omission makes the opinion statement at issue
mi sleading to a reasonable person reading the statement
fairly and in context . . That is no small task for
an investor.
Id.
As this Court emphasized in Fort Lauderdale, "[a]n issuer
may legitimately oppose a claim against it, even when it
possesses subjective knowledge that the facts underlying the
claims against it are true[ , ]" but "it must do so with
exceptional care , so as not to mislead investors . " Fort
Lauderdale , 683 F. Supp. 3d at 135 . What it entails is that
"[a]n issuer may not . ' ma [ke] [(misleading)] substantive
declarations regarding its beliefs about the merits of the .
litigation .'" Id . at 136 (quoting Rosenbaum Cap. LLC v. Boston
Commc ' ns Grp ., Inc . , 445 F . Supp . 2d 170, 175 (D. Mass. 2006))
(alteration in original) . Thus , an issuer need be careful when
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formulating such statements as "[a] reasonable investor ' expects
not just that the issuer believes the op i nion (however
irrationally) , but that it fairly aligns with the information in
the issuer ' s possession at the time .'" Id . (quoting Omnicare ,
575 U. S . at 189).
Pega , in its statements in the 2021 10 - K expressed , in
strong words , its " belie[£] " as to the lack of merit of Appian ' s
claim in the Virginia Action , Pega ' s " strong defenses ," and that
" any a l leged damages claimed by Appian are not supported by
necessary legal standard of proximate cause . " Compl. 1 162. By
doing so , as this Court concluded in Fort Lauderdale , and what
still holds true here , "Trefler and Pega categorically denied
that Appian ' s claims had any merit -- despite possessing
substantial information about the viability of those claims . "
683 F . Supp. 3d at 136 . While the reversal and remand of the
Virginia Action verdict shifts the validity of the
misappropriation claims alleged by Appian back to the realm of
uncertainty , i t does not d i spel PS Lit ' s allegations as to
Pega ' s extensive knowledge of the underlying facts and conduct
- - hiring a "spy ," accessing Appian ' s platform under " fake
names ," etc. Compl . 1 164 . PS Lit points both to the opinions
i t believes were misleading or false , as well as the "particular
(and material) facts go i ng to the basis for the issuer ' s
opinion ," Omnicare , 575 U. S . at 1 94 , whi l e emphasizing a
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resounding dissonance between them. Pega does create a
competing inference by undermining the relati ve and inherently
subjective nature of "belief . " Defs. ' Mem. at 8 -10. Pega does
so, however, in light of the Virginia Court of Appeals decision
which , of course , was also unavailab l e at the time Pega made the
disputed statements . In any case , such competing inferences
should be resolved , as appropriate at this stage, for the non -
movant. 2 PS Lit ' s allegations that Trefler and Pega ' s opinion
statements as to the Appian ' s c l aims were misleading are ,
therefore , adequately pled . Fort Lauderdale , 683 F. Supp . 3d at
136 .
Even if, however , this Court were to consider the
conclusions made by the Virginia Court of Appeals , l ittle
changes. A comparison invoked by Pega to the contrary about
the FDA ' s eventua l approval being a significant factor in
defeating the plaintiffs theory that defendants "knew, by the
first day of the Cl ass Period, of the serious adverse side
effects observed ," Kovtun v . VIVUS , Inc., No . 10-4957, 2012 WL
4477647 , at *10 (N . D. Cal. Sept. 27, 2012) , aff ' d sub nom.,
Ingram v. VIVUS, Inc. , 591 F. App ' x 592 (9th Cir. 2015) -- is
2
The Court must "take as true all well-pleaded facts in the
plaintiffs ' complaint[ ] . and draw all reasonable
inferences therefrom in [ their ] favor ." Fothergill v . United
States, 566 F . 3d 248 , 251 (1st Cir. 2009) (citing Muniz-Ri vera
v. United States, 326 F.3d 8 , 11 (1st Cir . 2003)) .
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distinguishable. The Virginia Court of Appeal's decision,
unlike the FDA approval of a drug, is distinguishable. While
some Virginia trial courts' errors warranted the reversal of the
verdict and a remand, the Court of Appeals also rejected Pega's
argument "that Appian failed to establish misappropriation of
any trade secret as a matter of law." The Virginia Court of
Appeals also stopped short of ruling the trial court was in
error in refusing to strike the verdict, emphasizing that
"Appian provided considerable evidence that it took careful
steps to safeguard its secrets and that the information was
neither 'generally known' nor readily ascertainable." See
Pegasystems, 904 S.E.2d at 284, 265. Thus, the reversal of the
Virginia Action verdict has no bearing on the truth or falsity
of Pega's statements which gave rise to the PS Lit claims at
this stage of the proceedings.
The same analysis applies to Pega's statements that the
appropriate causation standard did not support Appian's claim--
the Defendants misconstrue the Virginia Court of Appeals
decision as reinforcing the correctness of this statement by
saying that the damages award "had 'no correlation to proximate
cause.'" Defs.' Mem. at 10. The statement in full (from the
Quarterly Report on Form 10-Q for the first quarter of 2022),
however, voiced Pega's belief "that any alleged damages claimed
by Appian are not supported by the necessary legal standard of
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proximate cause ." Compl . t 162 (emphas i s added) . The Virginia
Court of Appeals merely h eld that the erroneous exclusion of
certain evidence in conjunction with a jury instruction ' s
emphas i s on Pega ' s tota l sales "exponentially increased the
likelihood of a runaway damages verdict that had no correlation
to proximate ca u se ." Pegasystems, 904 S . E . 2d at 276 .
For these reasons, Pega ' s arguments as to the Virg inia
Co urt of Appeals dec i s i on ' s impact in this case fail .
2. Code of Conduct
Next , Pega arg u es that Pega ' s Code of Conduct statement
expressing its commitment "[n] ever [ to ] use ill egal or
questionable means to acqui re a competitor ' s trade secrets or
other confidential information" is neither misleading nor
material . Comp l. t 16 . Pega further conte n ds that the Virgini a
Co u rt of Appeals ' decision is " fatal " to PS Lit ' s attempt to
show ob j ective and sub jective falsity . Defs.' Mem . at 10 . This
Co urt will proceed with the renewed ana l ysis for the same reason
stated above.
While other co u rts ha ve recognized codes of conduct as
"inherent l y aspirationa l" and " express [ing] opinions as to what
act i ons are preferable , as opposed to implying that all staff ,
d i rectors , and officers always adhere to its aspirations ," this
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view generally applies to objective l y unverifiable statements .
Retail Wholesale & Dep ' t Store Onion Loe. 338 Ret . Fund v.
Hewlett -Packard Co ., 845 F.3d 1268, 1276-77 (9th Cir. 2017)
(quoting Andropo li s v . Red Robin Gourmet Burgers , Inc., 505 F .
Supp . 2d 662 , 685-86 (D. Colo . 2007)) ; see also Singh v . Cigna
Corp. , 918 F.3d 57, 61, 63 (2d Cir. 2019) (holding that code of
ethics statements regarding "a responsibility to act with
integrity in all we do, including any and all dealings with
government officials" were a "textbook example of 'puffer y '" ) .
As this Court has al r eady ruled, however, Pega's Code of Conduct
statements that "describe[ ] with specificity a course of
conduct " that the defendant "promised to abjure" are not
asp irati onal and thus may be deemed act i onable . Fort
Lauderdale, 683 F. Supp. 3d at 134; see , e.g ., Constr. Laborers
Pension Tr. v. CBS Corp. , 433 F. Supp . 3d 515, 532 (S .D.N. Y.
2020) (listing among potentially actionable statements ,
" stateme nts that were so anathema to the alleged internal
wrongdoing that, even if general or aspirationa l, they were
materially false."); In re Tenari s S . A. Sec . Litig., 493 F.
Supp. 3d 143, 159 (E.D.N.Y. 2020) (finding actionable the code
of conduct statement that "[the company] will not condone , under
any circumstances , the offering or receiving of bribes or any
other form of improper payments").
[19)
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 20 of 45
Here , Pega argues that due to the Virginia Court of
Appeals ' decision to vacate the lower state court ' s verdict ,
this Court ' s ruling as to the actionability of one of the Pega ' s
Code of Conduct statements is no longer valid . The Court ,
again , rejects this argument .
Pega ' s Code of Conduct stated "that Pega would ' [n]ever use
illega l or questionable means to acquire a competitor ' s trade
secrets or other confidential information , such as . .. seeking
confidential information from a new employee who recently worked
for a competitor , or misrepresenting your identity in hopes of
obtaining confidential information .' " Compl . ~ 171 (emphasis
omitted) . As this Court observed in Fort Lauderdale, Pega ' s
Code of Conduct was an assurance "specifically directed to
investors." 683 F . Supp . 3d at 1 33 n.6. Contrary to what Pega
asserts in its motion to dismiss , the assurance implicated not
only trade secrets , but also "other confidential information."
This assurance explicitly proscribed Pega from " us[ing] illegal
or questionable means to acquire " and "misrepresenting your
identity in hopes of obtaining " such information. Meanwhile , PS
Lit al l eged that several Pega employees and officers were either
actively participating or at least familiar with the ongoing
operation , and that some Pega officers had doubts regarding the
legality of these practices. Compl . ~ 175 . Furthermore , as PS
Lit highlights in its opposition , Pega did not appeal the
[20]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 21 of 45
Virginia verdict as to the VCCA violations by Pega which, while
only resulting in nominal damages , could still be considered
bearing on to the falsity of the Code of Conduct assurances .
Pl .' s Opp ' n at 12 n.9. These allegations , seen in a light most
receptive to the non-movant , are enough to survive a motion to
dismiss.
3. Litigation Risk Disclosures
PS Lit further alleges that Pega "misl eading l y failed to
disclose the Virginia Action, which commenced in May 2020 , or
Pega ' s egregious misappropriation of Appian ' s confidentia l
information" in its SEC Reports on Form 10-Q, filed in the
second and third quarter of 2020 , throughout 2021 , as well as
Form 10-K filed in 202 1. Compl . ii 153-60. These forms
incorporated by reference the Form 10-K for fiscal year 2019
filed by Pega in February 2020 - three months before Appian
filed their Virginia lawsuit. Id. i 154. PS Lit ' s claim is
that the representations made in these forms repeatedly informed
investors about a potential risk for litigation, but ,
misleadingly, never actually disclosed that Pega "had already
engaged in a scheme to misappropriate Appian ' s intellectual
property , had already been caught in the act by Appian, was
already mired in lit igat i on over its scheme , and already faced
enormous financial and reputational risk as a result." Id. i
[ 21]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 22 of 45
153 (emphasis in original) . PS Lit argues that Pega ' s failure
to disclose the Virginia Action and potential loss expos ure
constituted a vio lation of SEC (Item 103) and GAAP (ASC 450)
regulations . Compl . ~~ 160(d), 17 9- 213. Forms 10-Q were signed
by Stillwell; Forms 10-K--by both Stillwell and Trefler .
151 , 1 55 , and 157.
Pega argues that such explicit disclosure was not required
under It em 103 as material pending litigation , nor as a loss
cont in gency under GAAP principles (ASC 450) , and it was
"necessarily included" by the passage , incorporated by reference
in the SEC filings before Feb . 16, 2022 , that Pega "ha [ s ]
received , and may in the future receive , n otices that claim we
have misappropriated, misused, or infringed other parties '
intellectual property rights , and to the extent we gain greater
market visibility , we face a high er risk of being the subject of
inte lle ctual property infringement claims ." Defs .' Mem . at 11-
15 ; Compl . ~ 153 .
a. S.E.C. Regulation S-K, Item 103
As to Item 103 , the regulati on requires disclosure of "any
material pending legal proceedings , other than ordinary routine
litigation incidental to the business , to which the registrant
or any of its subsidiar i es is a party or of which any of their
property is the subject ." 17 C . F.R . § 229 . 103(a) . An exception
is prov i ded for proceedings "[ t] hat involve primarily a c l aim
[22 ]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 23 of 45
for damages if the a mo unt involved, exc lu sive of interes t and
costs , does not exceed 10 percent of the current assets of the
r egist rant and its s ub sidiaries on a consolidated basis ," in
which case "no information need be given ." 17 C.F . R. §
229 .10 3 (b) (2).
Her e , Pega a rgu es th at : 1) App i an 's $90 ,000,0 00 damages
c l aim " a mounted to just 5 % o f Pega's current assets in every
quarter before February 2022 except for [ ... ] 3Q 2021 " thus
f al ling within the It e m's 10 3 ' s exception , 2) the Virgi ni a
Act i on "was exact ly th e type o f cla im to which [it] [was ]
' o rd inarily ' subject ," and 3) that PS Lit "ha[s] not adequately
a ll eged th at [Pega ] did n o t act u ally believe" that the Virg inia
Action was immat eria l. De f s ' Mem. at 14-1 5 (quoting Sa lim v .
Mobile Telesystems PJSC, No. 1 9- 1 589 , 2021 WL 796088 , at *9
(E.D.N.Y. Mar. 1, 2021), af f'd, No. 21 - 839-CV , 2022 WL 966903
(2d Cir . Mar. 3 1, 2022)) .
This Cou rt is not persuaded by Pega's arguments. As h e ld
by the Supreme Court in Omni care , "[t]he investor must ident if y
particular (and materia l) facts going to the basis for the
issuer's opinio n-facts abo ut the inquiry the i ss ue r did or did
not conduct or t h e knowledge it did or did not have-wh ose
omi ssion makes the opin i on statement at issue misleading to a
reasonable person reading the statement fairly and in context ."
575 U.S. at 194.
[ 23 ]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 24 of 45
PS Lit makes extensive allegations as to why the Virginia
Action fell outside classification as an "ordinary routine
litigation incidental to [Pega ' s] business." Compl. 11 184-204 .
PS Lit points out that Pega itself , in its 20 2 1 10 - K form filed
on February 16 , 2022 , indicated several million dollars in legal
fees and related expenses that arose "from proceedings that
originated outside of the ordinary course of business ", id. 11
186 - 88 , and that the damages sought in Virginia Action by Appian
surpassed the quantitative threshold of 10 % required by Item
103 . 3 I d . 190-93 . Importantly , PS Lit makes these allegations
in the broader context , arg ui ng that the Virginia Action cannot
be considered ordinary or routine and should have been disclosed
no later than in Pega's 2Q20 10 - Q filing. Id . 1 189 . This is
especially relevant considering the " extraordinary allegations"
of conducting " a nearly decade-long scheme to misappropriate a
primary competitor ' s information " as to the publicly traded
company , its CEO , and senior management . Id.
Pega ' s argument that the disclosure mandated by Item 103 is
"necessarily included" in the passage that " Pega "ha[s]
received , and may in t h e future receive , notices that c l aim we
PS Lit states that "Pega ' s reported then - current assets
3
during Relevant Period ranged from approximately $804 million to
$977 million , " while Appian sought damages " in an amount that
will exceed $90 million ." Compl . 11 191 - 92 (emphasis in
original) (internal citat i on omitted).
[24]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 25 of 45
have misappropriated, misused, or infringed other parties'
intellectual property rights ... " is also unavailing. Defs.'
Mem. at 11; Compl. ~ 153. The situation here is clearly
distinguishable from In re SeaChange Int'l, Inc., No. 02-12116-
DPW, 2004 WL 240317, at *10 (D. Mass. Feb. 6, 2004) (Woodlock,
J.), where "[the] disclosure was certainly enough to alert
investors of the [pending] litigation and to prompt them to make
further inquiry directly about the litigation should they choose
to do so." Here, Pega did not give the investors enough
information to conduct their inquiry. While "[t]he disclosure
required by Item 103 is meant to put potential investors on
notice of pending litigation, not to force companies to predict
a particular outcome in the litigation," id. (citing Wielgos v.
Commonwealth Edison Co., 892 F.2d 509, 517-18 (7th Cir. 1989) ),
a disclosure of unspecified "notices of claim" cannot be treated
as alerting the investing public in the same manner as outright
naming of a pending litigation. To the contrary, considering
the Section lO(b) and Rule 10-5 requirements, such partial
information could arguably be seen as a "half-truth" -- the type
of omission these rules aim to prohibit. 4 See Zhou, 120 F.4th at
4 For this reason, Pega raised the argument that it "could
not have known the trial judge would misapply Virginia law in a
manner 'exponentially increas[ing] the likelihood of a runaway
damages verdict.' Defs.' Mem. at 15 (quoting Pegasystems, 904
S.E.2d 247 at 276). This argument does not persuade the Court,
as the issue here does not turn on whether Pega was or was not
[25]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 26 of 45
292 (quoting Macquarie Infrastructure Corp . v. Moab Partners , L .
f..:_ , 144 S. Ct. 885 , 891 (2024)). For these reasons, PS Lit has
adequately pled its allegations as to the Item 103 disclosures
being misleading.
b. GAAP Rule ASC 450
With respect to the arguments as to whether Pega violated
GAAP Rule ASC 450 , Compl. ~~ 205 - 213 ; Defs .' Mem . at 13-14 , this
Court confirms its ruling expressed in Fort Lauderdale that
having found Pega and Trefler ' s statements false and/or
misleading , and " given th e fact - intensive nature of that
question , this Court prefers not to express a definitive view on
the issue at this stage ." 683 F. Supp . 3d at 136 n.10; see
also , e . g ., In re Ambac Fin . Grp ., Inc . Sec . Litig. , 693 F.
Supp . 2d 241 , 273 (S . D. N. Y. 2010) ("The parties ' disagreements
over GAAP compliance also raise issues of fact that cannot be
resolved on a motion to dismiss.")
4. BPM Industry, Pega's Marketing Efforts, and
"Competitiveness" Statements
PS Lit makes allegations with respect to several statements
made by Pega and the Individual Defendants in a variety of
a~le accurately to predict the outcome of the Virginia Action
per se .
[ 2 6]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 27 of 45
different circumstances which were related to sales , competitive
efforts , and market pos i tioning of Pega . 5 Compl. 11 139-49.
PS Lit claims these statements were materially false and
misleading when made , as they failed to disclose that the
positive outcomes were owed to espionage on competition to gain
access to its competitors ' confidential information and trade
secrets . 6 Id . 1 150 . Additionally , PS Lit makes several
a ll egations as to Sti ll well , Compl . 11 214-17 , that this Court
has ruled insufficient . See Elec . Clerk ' s Notes , EC F No. 40 .
Pega challenges these allegations , stating that PS Lit " has
not plausibly alleged t h at those statements were objectively
false , or that Pega did not believe that it was competitively
d i fferentiated or that i ts commercial success was attributable
to client relationships and industry experience. " Defs. ' Mem.
at 12 . As to any statements attributed to Stillwell , Compl . 11
139 - 40 , 142 - 43 , 145 , 149 , Pega invokes the Fort Lauderdale
decision where these statements were ruled not actionable as
5 NASDAQ 42nd London Investor Conference , 40th Annual
Canaccord Genuity Growth Conference , Barclays Global Technology ,
Media and Te l ecommunications Conference , conference call with
investors and analysts as part of the Jeffries Software
Conference , Pegasystems ' second quarter of 2020 earnings call ,
Form 10 - K for fiscal year 2020.
6 These comments concerned Pega ' s "credib[ility] " with
customers in public sector , Compl . 1 142 - 43 , its ability to
" differentiat[e ]" and " show very well competitive l y ", i d . 11
1 39 , 1 41 , 144 , 147 , its solution being "best-in-class ", id . 1
140 , and its marketing and sales efforts , id . 11 148-49 .
[27]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 28 of 45
they wer e made without scienter. Defs .' Mem . at 11 - 12 (citing
Fort Lauderdale , 683 F. Supp . 3d at 132) Moreover, as to
Sti llwell's statements with Presidium on March 11 , 2020 , May 5 ,
2020 , and June 4, 2020 , Pega challenges the al l egat i ons
contending the se statements were puffery . Defs .' Mem . at 12
n . 21.
Thi s Court rules that the argument over these allegations
i s fact -int ensive , making resolution at this stage
inappropri ate . Thus , this Court adopts the same approach as it
did with respect to GAA P Rule ASC 450 violations . See supra at
26 .
C. Scienter
A statement , even i f found false or misleading , must have
been made with t h e requisite scienter to be actionab l e under
PSLRA. See ACA Fin. Guar . Corp . v . Advest , Inc ., 512 F . 3d 46 ,
58 (1st Cir. 2008) . Importantly , in a private enfo r cement
action " the PSLRA also separately imposes a rigorous pleading
standard on allegations of sc i enter ." Id . Specifically , the
pleaded facts must give rise to a " strong inference" of
scienter . Tellabs , Inc. v . Makor I ssues & Rights , Ltd., 551
U. S . 308 , 322 (2007) . To support a finding of scienter under
the PSLRA , a compl aint must " state with particularity facts
giving rise to a strong inference that the defendant ... either
[28]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 29 of 45
... consciously intended to defraud , or that they acted with a
high degree of recklessness." Quinones , 106 F . 4th at 182
(citation and internal qu otatio n marks omitted). "It does not
suffice that a reasonable factfinder plausibly cou ld infer from
the complaint's allegations the requisite state of mind ."
Tellabs , 551 U. S . at 3 14. Instead , " an inference of scienter
must be more than merely plausible or reasonable -- it must be
cogent and at least as compelling as any other oppos ing
inference of nonfraudulent intent." Id .
Recklessness in this context means "a highly
unreasonab l e omission , involving not merely simple , or
even inexcusable[] negligence, but an extreme departure
from the standards of ordi nary care , and which presents
a danger of misl eading buyers or se ll ers that is either
known to the defendant or is so obvious the actor must
have been aware of it."
In re Biogen Inc. Sec . Litig., 193 F. Supp. 3d 5 , 44 (D. Mass .
2 016) (Saylor, J .) (quoting Mississippi Pub . Emps.' Ret . Sys . v .
Boston Sci. Corp . II, 649 F . 3d 5 , 20 (1st Cir . 2011 ))
(a l teration in original) , aff ' d , 857 F. 3d 34 (1st Cir. 2017) .
As th i s Court prev iously wrot e about the applicable PSLRA
standard , these "heightened pleading requir e me nts" go beyond the
standard provided in Rule 9(b) . Securities & Exch. Comm 'n v .
Sharp , 626 F. Supp . 3d 345 , 388 (D . Ma ss . 2022) (quoting Merrill
Lynch, Pierce , Fenner & Smith , Inc. v . Dabit , 547 U. S . 71 , 81
(2006)) . Judge Lindsay aptly described the underlying reasoning
o f this importan t legislative in t ervention :
[29 J
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 30 of 45
In particular, Congress sought to reform private
securities litigation to discourage unmeritorious class
actions , including actions brought because of a decline
in stock prices . The aims of the PSLRA are three-fold :
'(1) to encourage the voluntary disclosure of
information by corporate issuers ; (2) to empower
investors so that they--not their lawyers- - exercise
primary control over private securities litigation ; and
( 3) to encourage plaintiffs ' lawyers to pursue valid
claims and defendants to fight abusive claims. ' The
PSLRA seeks to curtail the filing of abusive lawsuits at
the pleading stage of litigation by establishing uniform
and stringent pleading requirements .
I n re Galileo Corp. S ' holders Litig ., 127 F . Supp. 2d 251 , 260
(D . Mass . 2001) (citations and quotations omitted) .
With that in mind , this Court evaluates the scienter
allegations made by PS Lit , which were in many instances
repackaged and expanded , as compared to the allegations made by
the class action plaintiffs in Fort Lauderdale . PS Lit makes
these extensive scienter allegations as to Pega , its officers
including the Individual Defendants -- and its employees. In
particular , PS Lit highlights how Pega secretly engaged a third
party " to identify and recruit ' an Appian Developer ' who was not
' loyal ' to Appian ." Compl . !! 65-76 . PS Lit also highlights
Zou ' s work creating various materials based on his access to
Appian ' s software was essential for " Project Crush", the
concealment of his identity , even in the internal conversations ,
Zou ' s close work with Pega employees . Compl . !! 65-76 , 219 - 220 .
PS Lit further alleges that "various Pega employees used fake
names and fake or front companies to conceal evidence of their
[30]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 31 of 45
espionage " when accessing Appian ' s platform , e . g ., the free
tr ial of Appian 's software , in full knowledge and approval of
severa l Pega's officers. Id. 11 92 - 109 , 224 . In this context ,
one of the directors -- Ben Baril ("Baril") -- allegedly changed
his depos iti on testimony in the Virginia Action , as to the
reason why he has created a fake consult i ng firm with a
fictitious website. Baril changed his reasoning from
"subscrib[ing] to certain journals or things that wanted
personal information that I didn ' t want to share" , to
" obtain [ing] access to a free Appian trial. " Baril also
allegedly changed his awareness of " anyone at
Pegasystems ... taking action to get access to the Appian software
platform ," from "I'm not " to "[ y ]e s , I'm aware of someone - of
others taking action to get access to the Appian software
platform." Id. 11 226-230. What can be inferred from these
al l egations is Pega ' s awareness and organized effort : 1) to
obtain information (presumably business confidential , if not
rising to the level of trade secrets) by employing methods that
violate Pega's own Code of Conduct , and 2) to conceal these
dubious corporate intelligence practices from the investing
public. 7
7
Th e complaint alleges , based on depositions and trial
transcripts from the Virginia Action that Pega ' s officers and
emp l oyees had voiced their doubts regarding the legality of
these practices. Compl. 11 238-42.
[31]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 32 of 45
Standing alone , the abovementioned practices may create at
least an equally strong inference that the purpose of keeping
secrets was to prevent Appian from learning about Pega's
theoretically legal corporate intelligence efforts . " When there
are equally strong inferences for and against scienter ,"
however , "the draw is awarded to the plaintiff." Pizzuto v .
Homology Meds ., Inc ., No . 1 : 23 - CV-10858 - AK , 2024 WL 1436025 , at
*15 (D . Mass . Mar . 31 , 2024) (Kelley , J . ) (quoting City of
Dearborn Heights Act 345 Police & Fire Ret. Sys . v. Waters
Corp ., 632 F . 3d 751 , 757 (1st Cir . 2011)) ; see also Skiadas v .
Acer Therapeutics Inc ., No . 1 : 19 - CV- 6137 - GHW , 2020 WL 3268495 ,
at *10 (S . D.N . Y. June 16 , 2020) (Woods , J.) ("At the motion to
dismiss stage , a tie on scienter goes to the plaintiff " ).
Moreover , what pushes these inferences beyond the required
threshold are the allegations as to Pega ' s senior management .
Most notable is Trefler -- both as an Individual Defendant and a
corporate officer responsible for making the challenged
statements whose scienter is imputed to Pega , see In re Boston
Sci . Corp . Sec . Litig ., No . CV 20 - 12225 - DPW , 2022 WL 17823837 ,
at *2 (D . Mass . Dec. 20 , 2022) (Woodlock , J . ) - - and who is
personally alleged to have instigated and overseen the
fraudu l ent scheme . Compl . 11 66 , 77 . Importantly , the
complaint paints Trefler not only as an overseer , who allegedly
approved hir i ng the inside operative , id . 1 66 , received updates
[32]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 33 of 45
about the intelligence operations , e . g . , id . 11 10 , 67 , 85 , 86 ,
88 , 96 , 252 , but also as an active participant , who himself used
a fake alias to access Appian software, id . 1 224 .
In its defense , Pega argues that the Virginia Action
demonstrates a lack of the required scienter , pointing to
"Trefler's belief that Pega ' s competitive intelligence efforts
were lawful and that Appian's claims were without merit because
Pega had not misappropriated any ' trade secrets. '" Defs. ' Mem .
at 16 - 17 . Pega reasons that "even if [the Court] were to accept
as true Plaintiffs' unsupported statements that . . . [Trefler]
... must have known both about the [lawsuit] and about the
fraudulent business practices forming the basis of [the Virginia
Action] , the important issue in this case is not whether
Defendants knew the underlying facts , but whether Defendants
knew that not disclosing the [lawsuit] posed substantial
likelihood of misleading a reasonable investor ." Id . at 17
(quoting City of Philadelphia v. Fleming Cos ., Inc ., 264 F . 3d
1245 , 1264 (10th Cir . 2001)).
These arguments are unavailing . First , the PS Lit
allegations in this case are supported and substantiated by the
extensive evidentiary material of the Virginia Action invoked
and cited by PS Lit in its complaint . Even if this Court does
not rely on this material , the existence of that evidence serves
as a basis for alleging facts here . Second , Trefler personally
[33]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 34 of 45
signed and authorized the statements that PS Lit alleges were
false and misleading . Considering Trefler ' s knowledge about
both the underlying facts pertaining to the corporate
intelligence efforts and the effect that relief sought by Appian
may have on Pega ' s financial situation , an outright "denial of
Appian claims ' merit posed an obvious danger to mislead
investors as to the substantial risks Pega was facing in
connection with the Virginia Action." Fort Lauderdale , 683 F .
Supp . 3d at 132 ; see also Schlifke v . Seafirst Corp., 866 F.2d
935 , 946 (7th Cir. 1989) ("rather , it is the ' danger of
misleading buyers [that] must be actually known or so obvious
that any reasonable man would be legally bound as knowing' " )
(quoting Sundstrand Corp . v. Sun Chem . Corp ., 553 F . 2d 1033,
1045 (7th Cir. 1977)) .
Taken together , these factors create a cogent and
compelling inference of , if not conscious intention to defraud,
at least a high degree of recklessness. See Quinones , 106 F.4th
at 182 . As this Court previously noted , "[s]cienter is a
holistic concept and 'need not be irrefutable , i . e. , of the
"smoking-gun" genre , or even the "most plausible of competing
inferences."'" Premca Extra Income Fund LP , 763 F. Supp . 3d at
158 (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd. , 551
U.S . 308 , 323 - 324(2007). Accordingly , this Court rules that PS
[34)
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 35 of 45
Lit has alleged sufficient facts to raise a strong inference of
scienter as to Pega and defendant Trefler .
Wi th respect to defendant Stillwell , this Court signaled
during the motion hearing that the scienter allegations are
insufficient. Tr . Mot. Hr ' g at 20 . Admittedly , PS Lit has
attempted to bolster its argument by invoking defendant
Stil l well ' s statements made after the Virginia Action trial.
Compl . 1 129 . PS Lit reasons that "Defendants now concede that
the preparers and signers of Pega ' s f i nancial disclosures --
inc l ud i ng Stillwell - ~ determined that the Virginia Action was
' immateria l, ordinary , and routine litigation ' that did not
require d i sc l osure" and that "[s]uch a determination requires an
actual assessment of the merits ." Pl .' s Opp ' n at 14 . Because of
th i s assessment , " it cannot be ' mere speculation ' that Stillwell
invest i gated and evaluated the Virginia Action in the course of
making determinations of its merit and materiality : that is a
conceded fact (or there is at l east a strong inference of that
fact based on Defendants ' argument) . " Id . To no avail . PS Lit
sti l l relies on the inference that Stillwell must have assessed ,
invest i gated , and evaluated the merits of the Virginia Action
because of his position in Pega -- a repackaged "must have
known" claim . Thus , this Court ' s conclusions made in Fort
Lauderdale , finding such allegations a "mere speculation " and " a
mere extension of the ' scienter by status ' theory , which has
[35]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 36 of 45
been uniformly rejected ," retain their validity in this case .
Fort Lauder dale , 683 F. Supp. 3d at 132 (quoting Lirette v .
Shiva Corp ., 27 F . Supp. 2d 268 , 283 (D . Mass . 1998)) .
D. Section 20(a) Against Individual Defendants is
Plausibly Alleged
Sect i on 20(a) provides that once a company has been found
to have violated the Exchange Act's substantive provisions ,
"[ e]very person who , directly or indirectly , controls " the
company " shall also be li able j ointly and several ly with and to
the same extent as [the comp any ] unless the controlling
p e rs o n acted in good faith and did not directly or indi rectly
induce the act or acts constituting the violation or cause o f
action ." 15 U.S . C. § 78t(a) (emphasis added) . Thu s , "[ a ]
Section 20(a) claim ," 15 U. S . C. § 78t , "is derivative of an
underlying violation of the securities laws ." Fire & Police
Pension Ass ' n of Colorado v . Abiomed, Inc., 778 F.3d 228 , 246
(1st Cir. 2015) (cit ing ACA Fin . Guar . Corp . v. Advest , Inc. ,
512 F . 3d 46, 67-68 (1st Cir. 2008)) . Accord ingl y , to plead a
viab le Section 20(a) cla im against the Individual Defendants ,
the Plaintiffs mu st first plead an actio nable claim under
Sect i o n l0(b) of the Exchange Act and Ru l e l0 b - 5 . See In re
Sto n e & Webster, Inc ., Sec . Litig ., 424 F.3d 24 , 27 (1st Cir .
2005) ("In short , it is an essential element of the§ 20(a)
[ 36]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 37 of 45
controlling person claims in question that plaintiffs show a
Ru l e l0b-5 violation by the controlled entity . ") ; Winters v .
Sternberg , 529 F . Supp . 2d 237 , 247 (D . Mass . 2008) ("A section
20(a) claim is dependent on establishing an ' independent
violat i on of the securities laws .' ") (quoting In re Focus
Enhancements , Inc . Sec . Litig ., 309 F . Supp . 2d 134 , 157 (D .
Mass . 2001) (Woodlock , J . )) .
Here , PS Lit a l leges Section 20(a) claims against the
Individual Defe n dants as contro ll ing persons within t h e meaning
of Sect ion 20(a) on the grounds that :
[b ] y v i rtue of their high - level pos i tions , partic i pation
in and awareness of the Company ' s operations , intimate
know l edge of Pega ' s publicly - issued statements , and
facts alleged . the Individual Defendants had the
power to influence and control and did influence and
contro l, directly or indirect l y , the dec i sion - making of
the Company , including the content and dissemination of
t he a l legedly false and misleading statements giving
rise to the securities violations as alleged in [c ] ount
I.
Compl . ~ 316 . As to Trefler , PS Lit points to his position as
the CEO and Chairman of Pega since 1983 , who also owned , in the
re l evant time frame , 49 - 50 % of Pega ' s outstanding common shares ,
and who , allegedly , " exerted a tremendous amount of power over
the Company ." Id. 1 1 31 0- 1 1. Wi th respect to Stillwell , PS Lit
emphasizes his " expansive role at Pega on both the financial and
operat i onal side of the bus iness " as the Company's COO and CFO .
Id . ~ 314. PS Lit further alleges that
[ 37]
Case 1:24-cv-12996-WGY Document 53 Filed 01/08/26 Page 38 of 45
[t] he Individual Defendants signed SEC filings
during the Relevant Period , including SOX Certifications
in connection with these filings attesting to their
accuracy , and thus were responsible for the content and
dissemination of these materials , including the false
and misleading statements therein. . the Individual
Defendants themselves made numerous false and misleading
statements during industry or earnings conference calls
identified above , and thus had the ability to prevent
these statements from being made or cause the statements
to be corrected .
Id .
AI-generated responses must be verified and are not legal advice.