Investor files lawsuit against Zoom App claiming it made $172.9 million through insider trading


Investor claims Zoom video conferencing App CEO, Eric Yuan, and CFO, Kelly Steckelberg made $173 million through insider trading during the coronavirus pandemic

Ever since the world went into lockdown due to the coronavirus pandemic, one company has been in focus throughout the six months starting from the day the Coronavirus pandemic started. It is the Zoom video conferencing App. It has got bad press due to its very poor security measures to protect its users, zoombombing, zoomraiding, and selling of 500,000 Zoom ids on the dark web hacker forums. It has got good press due to the ease with which any Tom Dick and Harry could host video conferences without much technical knowledge. It was in news last week when it decided not to give end-to-end encryption to free users.

One thing is sure, the Zoom founders, Eric Yuan, Kelly Steckelberg, and Peter Gassner made millions since its IPO debut on April 23, 2019, at a price of $36 a pop. In fact, its earning surged 129 % during the coronavirus lockdown period making the Zoom founders billionaires. At present, the Zoom video conferencing App stock price is quoting at $219 on NASDAQ.

An early investor in Zoom Video Communications Inc, the parent of Zoom App has alleged that Zoom founders made millions manipulating the market through insider trading. In a class-action suit filed in Delaware federal court on June 11, the investor accuses the Zoom CEO Eric Yuan and CEO, Kelly Steckelberg making a whopping $173 million through insider trading in collusion with other board members. The case is Gervat v. Yuan et al., case number 1:20-cv-00797, in the U.S. District Court for the District of Delaware.

The suit accuses all but one of Zoom’s nine board members including the CEO, CFO of giving investors a “false impression of the company’s business, operations, and its cybersecurity.” The suit says that contrary to what the Zoom top brass said, Zoom’s cybersecurity measures proved inefficient due to the zoombombing, zoomraiding, hacking, and sales of Zoom IDs on the dark web.

Readers should note that there is a similar lawsuit filed against Zoom founders, which, like the derivative suit, connects drops in Zoom’s otherwise booming stock price to alleged revelations about security and privacy issues. However, that lawsuit blames the company but in this derivative lawsuit, the investor has specifically blamed the Zoom’s board, along with its CEO and CFO for insider trading.

“The company has been substantially damaged as a result of the individual defendants’ knowing or highly reckless breaches of fiduciary duty and other misconduct,”

Derivative lawsuit alleges.

In this suit, the investor contends that six of the defendants, including Zoom’s CEO, netted nearly $173 million in proceeds in the 12 months after Zoom’s April 2019 IPO from “lucrative insider sales” based on nonpublic information. The derivative lawsuit contends that Zoom said that end-to-end encryption could be enabled on its video communications service, but in reality, Zoom’s platform and primary application “were riddled with security deficiencies that exposed its network, including users’ webcams, to unauthorized intruders.”

The derivatives lawsuit says that Zoom was selling/giving personal data to third parties like Facebook without users’ consent, and did not actually offer end-to-end encryption as per Zoom statement. The derivatives lawsuit says that Zoom founders and board members made money in July 2019 when it was first reported that Zoom App had a flaw that allowed hackers to overtake Zoom users’ webcams. At that time a leading public interest group filed a complaint with the U.S. Federal Trade Commission and causing a stock price decline. The lawsuit claims that the Zoom CEO, CFO, and the board members made money using insider information when the Zoom App stock tanked.

Despite the company’s own claims, Zoom’s video communications software was not equipped with end-to-end encryption. Consequently, Zoom users faced certain risks, including a heightened risk that their personal information would be improperly retrieved by unapproved parties, such as Facebook.

Lawsuit against Zoom App

The investor says in the lawsuit that suspicious stock sales by Zoom’s CEO were seen when the news of a state attorney general’s investigation Zoom App was made public. Added to that, the news on April 6 that the New York City Department of Education would no longer be using the Zoom App for remote learning, caused the stock price to drop from $128.20 to $122.94. The lawsuit alleges that Zoom App founders made money on this information.

The lawsuit includes all Zoom board members except for the former national security adviser H.R. McMaster, who joined the board in May 2020.

Zoom has not commented on this derivative lawsuit.


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"The Internet is the first thing that humanity has built that humanity doesn't understand, the largest experiment in anarchy that we have ever had." Eric Schmidt

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