Even over a holiday weekend, alerts were hitting the newswires in advance of Jan. 3—the deadline for shareholders of ON24 to apply for lead plaintiff status in a lawsuit against the online event platform.

ON24 is just one of the companies that became more popular with insurance and non-insurance professionals alike during COVID lockdowns. With that popularity slacking off as people returned to in-person meetings, it also is one of at least six companies now facing a new wave of COVID-related shareholder lawsuits. The suits allege that various defendants misrepresented the fact that surges in demand for their products and services were closely tied to surges in COVID disease that kept people at home.

For ON24, the alleged misrepresentations came in a registration statement filed on Jan. 8 last year for an initial public offering conducted on Feb. 3. Representations in the offering documents failed to disclose “that the surge in COVID-19 customers ON24 observed in the lead up to the IPO consisted of a significant number that did not fit ON24’s traditional customer profile and, as a result, were significantly less likely to renew their contracts,” lawyers said in the first identified complaint on Nov. 3, 2021.

Kevin LaCroix, executive vice president of specialty insurance intermediary RT ProExec, who is also author of the D&O Diary blog, described the complaint in a Nov. 4 blog post. “This new lawsuit is the latest example of the ways that more than a year and half in, the pandemic continues to affect businesses and continues to lead to securities class action litigation and other D&O claims,” he wrote, having counted 36 COVID-related securities class action lawsuits that had been filed to that point (including the ON24 case) since the initial U.S outbreak in March 2020.

“Just as the coronavirus itself has produced new variants as time has gone by, the coronavirus-related litigation is leading to new variants as well,” LaCroix wrote, noting that the ON24 lawsuit allegations were different than those in 34 of the 35 prior COVID-related shareholder actions he had tallied.

LaCroix sees prior waves of COVID-related securities class action lawsuits falling into these three categories:

  • Defendants are companies that experienced virus outbreaks in their facilities. Think cruise ship lines and meat-packers, for example.
  • Defendants well positioned to profit from virus outbreaks, for which profits didn’t quite materialize. Vaccine developers and diagnostic testing companies fall in this category.
  • Defendants whose operations or financials suffered as a result of COVID outbreaks. Hospital systems and real estate development companies are examples, LaCroix notes.

In September, LaCroix first got an inkling that a fourth wave might be starting against companies that actually prospered when COVID forced government shutdowns but then saw revenues and profits fall when businesses reopened. The case that got him thinking about this fourth variant was filed against The Honest Company, a seller of natural baby and beauty products. Like ON24, The Honest Company completed an IPO in 2021. Post-IPO, the consumer products company started reporting its bottom line in red ink and slowing growth as demand for diapers, baby wipes and sanitizing products started to wane.

At that point, LaCroix wasn’t quite sure whether The Honest Company case represented a new wave of class actions or whether it was an extension of the third category of lawsuits (financial disruption).

Two months later, the case against ON24—and cases filed in November and December with similar allegations against Peleton Interactive (at-home exercise), Citrix (computer networking), DocuSign (software for automation of contracts and eSignatures) and Chegg (online education)—justified LaCroix’s declaration of a fourth variant of cases. All of these cases center on failures to disclose the fleeting positive impact of COVID shutdowns on financial results and subsequent declines in fortunes that occurred after businesses reopened and individuals started leaving their homes.

One of the latest filings, Brian D. Collins, et al. v. DocuSign, Inc., et al., filed in the United States District Court of the Eastern District of New York on Dec. 22, 2021, reveals the general flavor of this group of class actions. Naming the chief executive officer, two chief financial officers and the company as defendants, the complaint alleges that during a class period extending from March 27, 2020 through Dec. 2, 2021, the defendants misled investors early on during the pandemic by failing to disclose that “the impact of the COVID-19 pandemic on DocuSign’s business was positive, not negative,” misrepresented the role that the pandemic had on its growth, and “downplayed the impact that a ‘return to normal’ would have on the company’s growth and business.”

According to the complaint, although a 10-K annual report filed on March 27, 2020 disclosed the possible risk that the pandemic could harm DocuSign’s business, three months later in June, the CEO was saying, “While no one is 100 percent sure what the world will look like, it’s clear that the ways of doing business are changing. Remote work is here to stay…As a result, for organizations that hadn’t already embraced DocuSign for eSignature, that were only using us for a few select use cases, the pandemic has been a catalyst for the greater digital transformation of their end-to-end agreement processes.”

The complaint goes on to quote remarks the CEO made during a Dec. 3, 2020 quarterly earnings conference call, referring to the example of a large U.S. insurance customer:

“As part of the response to COVID-19, the company expanded into several new eSignature use cases, which drove nearly 100,000 additional transactions over just the past seven months. As I alluded to earlier, the insurer believes this will become business as usual from here on in. This last point reinforces something that history has taught us at DocuSign. When customers go from paper-based processes to digital agreement processes, they do not go back. We believe that trend will hold when the pandemic subsides, and the DocuSign’s value will persist no matter how the future of work unfolds.”

(Editor’s Note: The portion of the complaint that cites this excerpt refers to this as being part of the “third-quarter fiscal 2021” earnings call. It was spoken during an earnings conference for the period ending Sept. 30, 2020, according to an online transcript on the Motley’s Fool website.)

But on Dec. 2, 2021, the company reported that it had fallen short of earlier guidance on billings. “With the boost from COVID-19 over the past year and a half, we experienced exceptionally high growth rates at scale as we captured customer demand at an unprecedented pace. As we move through Q3 and into the second half of the year, we saw demand slow and the urgency of customers’ buying patterns temper. While we had expected an eventual step-down from the peak levels of growth achieved during the height of the pandemic, the environment shifted more quickly than we anticipated,” the CEO explained according to the complaint and online transcripts of an earnings call on that date.

On Sunday, Jan. 2, 2022 and Monday, Jan. 3, 2022, plaintiffs law firms including the Rosen Law Firm and Robbins LLP continued to put out alerts on Business Wire and other newwire services reminding investors of a Feb. 22, 2022 deadline to apply for lead plaintiff status in the DocuSign case. And Rosen, along with Bronstein, Gewirtz & Grossman, LLC, Bragar Eagel & Squire, P.C., Pomerantz LLP, and a host of others delivered their reminders of the looming Jan. 3 lead plaintiff deadline for ON24 in the days before New Year’s up until deadline day on Monday.

LaCroix continues to count COVID-related shareholder class actions, and he highlighted the continuing COVID-19 related shareholder litigation as one of the Top 10 D&O stories for 2021 in a blog item yesterday. To date, he’s counted 42 such class actions over the course of 2020 and 2021, along with at least 16 coronavirus-related shareholder derivative lawsuits and 10 SEC coronavirus-related SEC enforcement actions.