Khan v. ChargePoint Holdings, Inc.

Background

Farooq Khan and Colby Smith filed separate proposed class actions against ChargePoint Holdings, Inc., its CEO Pasquale Romano, and its CFO Rex Jackson. They allege that the defendants made false or misleading statements to investors who purchased ChargePoint securities, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5.

The alleged misstatements concerned higher component costs and supply overruns that allegedly were likely to cause inventory impairment charges and reduce profitability. The Khan action proposed a class period from June 1, 2023, through November 16, 2023. The Smith action proposed a longer period, from December 7, 2021, through November 16, 2023.

Seven motions were filed seeking consolidation and appointment of a lead plaintiff and lead counsel. One movant withdrew, and three others filed notices of non-opposition, leaving four competing motions for the court to consider: those filed by Shahram and Paulina Afshani, Gary Schneeweiss, Collin Sekas, and John Pignataro.

Consolidation

The court granted the unopposed motions to consolidate the Khan and Smith actions under Federal Rule of Civil Procedure 42(a). The court found that both cases assert the same claims against the same defendants based on the same alleged failure to disclose material inventory impairment charges. The difference in the proposed class periods did not justify keeping the cases separate. The consolidated cases will proceed under the Khan caption and case number.

Lead Plaintiffs

The Private Securities Litigation Reform Act creates a presumption that the proposed class member with the largest financial interest is the most adequate lead plaintiff, unless that person cannot fairly and adequately represent the class or faces unique defenses.

The court used Smith’s longer class period to evaluate the movants’ financial interests. It also used a net-loss calculation rather than a net-shares calculation because the case involved gradual disclosures of inventory impairment charges, making it less likely that a constant fraud-related price premium could be assumed.

Under that approach, the Afshanis had the largest stated financial interest, $1,759,765.60. The other listed interests were approximately $600,000 for John Pignataro, $400,734.56 for Gary Schneeweiss, and $354,779.23 for Collin Sekas under the Khan period noted in the chart.

The court rejected challenges to the Afshanis’ adequacy. Although most of their alleged loss came from options transactions, they also traded ChargePoint common stock, and the proposed class included purchasers of securities. The court also found that allegations concerning Mr. Afshani’s prior litigation did not establish that he could not adequately represent the class; the referenced cases ended without findings of liability or wrongdoing.

The court therefore appointed the Afshanis as lead plaintiffs.

Lead Counsel

The Afshanis selected Hagens Berman Sobol Shapiro LLP as class counsel. The court found that the firm had significant experience in similar securities-fraud class actions and that the choice was facially reasonable. The court therefore appointed Hagens Berman as lead counsel.

Result

The order consolidated the two actions and appointed the Afshanis as lead plaintiffs and Hagens Berman as lead counsel. It did not decide the merits of the securities-fraud allegations.