On March 11, 2020, United States District Judge John J. Tuchi issued an Order denying, in substantial part, the motion filed by Microchip; its CEO Steven Sanghi; its President and COO Ganesh Moorthy; and its CFO J. Eric Bjornholt to dismiss the complaint filed by Wolf Popper LLP, lead counsel in this putative class action. Among other things, the Court concluded that the complaint properly alleges that the Defendants’ statements concerning the historical performance of Microsemi, a competitor acquired by Microchip, were misleading given Microchip’s use of differing accounting practices. The Court found as follows:
Defendants are correct that they were transparent in their communications by saying that Microsemi employed a GAAP basis and Microchip employed a non-GAAP basis. But it is a different matter to conflate the two, report apparently GAAP revenue numbers as non-GAAP numbers, and ultimately to add numbers calculated on different bases to get a sum non-GAAP revenue number. Considering the information [p]laintiff alleges [d]efendants had regarding Microsemi’s inventory-stuffed channel, the Financial Model—and particularly the ‘Microchip + Microsemi’ sum revenue number and the calculations derived from it—was misleading.
In addition, the Court concluded that the complaint properly alleges the defendants’ intent to defraud investors, finding the allegation that they “knew of Microsemi’s inventory and revenue practices and yet misrepresented or omitted key information in communications with investors and stock analysts is cogent and at least as compelling as any nonculpable inference proffered by [d]efendants.”