IN RE: PERION NETWORK LTD. SECURITIES LITIGATION

Background

Lead Plaintiffs Menora and Clal brought this securities-fraud action on behalf of people who purchased or acquired Perion Network Ltd. stock between February 9, 2021, and June 7, 2024. They sued Perion and directors and officers Doron Gerstel, Tal Jacobson, Maoz Sigron, and Asaf Katzir.

Plaintiffs alleged violations of Section 10(b) of the Securities Exchange Act of 1934, Securities and Exchange Commission Rule 10b-5, and Section 20(a), which concerns control-person liability. They also asserted claims under Israel’s securities law. The claims focused on Perion’s search-advertising business, through which it helped publishers distribute search engines such as Microsoft Bing and received a share of advertising revenue. Plaintiffs alleged that Perion publicly overstated the quality of its publishers and search traffic, including by describing its quality standards as “impeccable,” while allegedly sending Microsoft fake, low-quality, or non-monetizable traffic.

Perion later reported reduced search activity and stated that Microsoft had excluded several publishers from its search-distribution marketplace. Plaintiffs alleged that these disclosures caused substantial declines in Perion’s stock price. Defendants moved to dismiss the amended complaint for failure to state a claim.

Legal standard

The court applied Rule 12(b)(6), which asks whether the complaint contains enough factual allegations to state a legally plausible claim. Because the claims alleged securities fraud, Plaintiffs also had to identify the allegedly misleading statements and explain why they were misleading with particularity. Under the Private Securities Litigation Reform Act, they further had to plead particularized facts creating a strong inference that Defendants acted with scienter, meaning fraudulent intent or recklessness.

Actionable statements

The court held that Plaintiffs’ allegations about statements generally discussing search traffic, publishers, revenue, or Perion’s relationship with Microsoft were not actionable. Those statements did not create a general duty to disclose all information about publisher or search quality. Several statements directly mentioning quality were also nonactionable puffery or opinion because they were vague, aspirational, or too general for a reasonable investor to rely on as factual representations.

The court reached a different conclusion about two 2022 statements by Gerstel describing Perion’s quality standards as “impeccable.” At the motion-to-dismiss stage, the court accepted Plaintiffs’ allegations that a significant amount of Perion’s search traffic came from low-quality publishers and that “quality” had a particular meaning in this business. The court therefore held that Plaintiffs adequately alleged that a reasonable investor could understand those statements to mean that Perion used rigorous standards that generally prevented low-quality publishers from sending traffic to Microsoft.

Scienter

Despite finding that the two statements could potentially be actionable, the court held that Plaintiffs did not adequately plead scienter. Plaintiffs relied partly on stock sales by Sigron and Gerstel, but the sales occurred well after the statements at issue, many were made under a trading plan, and the allegations did not show that the sales were unusual or suspicious. General references to reduced holdings by a larger group of officers and directors, including people who were not defendants, were also insufficiently specific. Equity-based compensation likewise did not establish a motive to commit fraud.

The court also rejected Plaintiffs’ allegations that confidential witnesses showed Defendants knew about low-quality traffic. The allegations concerning the knowledge of a CodeFuel sales executive were too vague, and Plaintiffs had not provided particularized facts connecting that executive’s alleged knowledge to Jacobson or Gerstel. The court further held that the allegations did not adequately show that the executive acted with scienter or that any such scienter could be attributed to Perion.

Other claims and disposition

Because Plaintiffs failed to allege a primary violation of the Exchange Act, the court held that they also failed to state a Section 20(a) control-person claim. The court declined to exercise supplemental jurisdiction over the Israel securities-law claim, citing the early stage of the case and considerations of judicial economy and convenience.

The court granted Defendants’ motion to dismiss and dismissed the action. It granted Plaintiffs leave to file a Second Amended Complaint by July 25, 2025. The opinion’s conclusion does not separately label the disposition of the Israel securities-law claim as “without prejudice,” although the discussion explains that claims remaining after the federal claims are dismissed may be dismissed without prejudice when the court declines supplemental jurisdiction.