In re SentinelOne, Inc. Securities Litigation

• Court: District Court, N.D. California
• Decided: July 2, 2024
• Docket: 4:23-cv-02786
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 IN RE SENTINELONE, INC. 7 SECURITIES LITIGATION Case No. 23-cv-02786-HSG 8 ORDER GRANTING MOTION TO

DISMISS 9 Re: Dkt. No. 51 10 This Document Relates to All Actions 11

12 13 Pending before the Court is a motion to dismiss Lead Plaintiff’s putative securities class 14 action filed against Defendants SentinelOne, Tomer Weingarten, and David Bernhardt 15 (“Defendants”). Dkt. No. 51. For the reasons below, the Court GRANTS the motion to dismiss 16 WITH LEAVE TO AMEND. 17 I. BACKGROUND 18 SentinelOne is a cybersecurity company that offers its products via subscription contracts, 19 generally on terms of one to three years. Amended Complaint (“AC”) ¶ 3. The company 20 recognizes revenue ratably over the course of a contract in accordance with Generally Accepted 21 Accounting Principles (“GAAP”). Id. It also tracks three non-GAAP “key business metrics,” 22 including Annualized Recurring Revenue (“ARR”). Id. During the Class Period, Defendants 23 defined ARR as “the annualized revenue run rate of our subscription and capacity contracts at the 24 end of a reporting period, assuming contracts are renewed on their existing terms for customers 25 that are under contracts with us.” Id. 26 On June 1, 2023, Defendants announced that SentinelOne was adjusting both its previously 27 reported ARR figures and ARR projections. Id. ¶ 4. Specifically, Defendants disclosed that 1 5% of total ARR” to its previously reported ARR figures. Id. Defendants also announced that 2 SentinelOne’s projected ARR growth for the fiscal year ending January 31, 2024 needed to be cut 3 by roughly 25% and that its projected revenue for that fiscal year also needed to be reduced from 4 $631–$640 million to $590–$600 million. Id. 5 Defendants offered two explanations for these adjustments. First, Defendants noted that 6 due to changing macroeconomic factors, they needed to adjust the ARR calculations to remove 7 amounts based on “consumption and usage,” such as for excess-usage charges or other charges for 8 additional services. Id. ¶¶ 6, 78. Second, Defendants disclosed that they recently discovered they 9 had been double-counting ARR in certain circumstances. Id. ¶¶ 7, 79. Specifically, if a customer 10 renewed a contract but added additional services, both the cost of those additional services and the 11 value of the historical contract would be added into and included in the ARR. Id. ¶ 7. Because the 12 ARR figure already accounted for the historical contract price, SentinelOne had apparently 13 double-counted these ARR figures. Id. 14 In response to Defendants’ revelations after close of the market on June 1, SentinelOne’s 15 stock price fell the following day by $7.28 per share, from $20.72 to $13.44 per share, or more 16 than 35%. Id. ¶ 92. 17 Plaintiff brings this putative class action on behalf of individuals who purchased or 18 otherwise acquired SentinelOne securities between June 1, 2022 and June 1, 2023 inclusive 19 (“Class Period”), and who were damaged as a result of Defendants’ violations of the Exchange 20 Act (“Class”), including violations of Section 10(b) and Rule 10b-5(Count 1) and Section 20(a) 21 (Count 2). Id. ¶ 106. 22 II. LEGAL STANDARD 23 A. Federal Rule of Civil Procedure 12(b)(6) 24 Federal Rule of Civil Procedure 8(a) requires that a complaint contain “a short and plain 25 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A 26 defendant may move to dismiss a complaint for failing to state a claim upon which relief can be 27 granted under Federal Rule of Civil Procedure 12(b)(6). “Dismissal under Rule 12(b)(6) is 1 a cognizable legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th 2 Cir. 2008). To survive a Rule 12(b)(6) motion, a plaintiff must plead “enough facts to state a 3 claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 4 A claim is facially plausible when a plaintiff pleads “factual content that allows the court to draw 5 the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 6 556 U.S. 662, 678 (2009). In reviewing the plausibility of a complaint, courts “accept factual 7 allegations in the complaint as true and construe the pleadings in the light most favorable to the 8 nonmoving party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 9 2008). Nonetheless, courts do not “accept as true allegations that are merely conclusory, 10 unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Secs. Litig., 536 11 F.3d 1049, 1055 (9th Cir. 2008). 12 B. Heightened Pleading Standard 13 Section 10(b) of the Securities Exchange Act of 1934 provides that it is unlawful “[t]o use 14 or employ, in connection with the purchase or sale of any security registered on a national 15 securities exchange or any security not so registered . . . any manipulative or deceptive device or 16 contrivance . . . .” 15 U.S.C. § 78j(b). Under this section, the SEC promulgated Rule 10b-5, 17 which makes it unlawful, among other things, “[t]o make any untrue statement of a material fact or 18 to omit to state a material fact necessary in order to make the statements made, in the light of the 19 circumstances under which they were made, not misleading.” 17 C.F.R. § 240.10b-5(b). To 20 prevail on a claim for violations of either Section 10(b) or Rule 10b-5, a plaintiff must prove six 21 elements: “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a 22 connection between the misrepresentation or omission and the purchase or sale of a security; (4) 23 reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” 24 Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 157 (2008). At the 25 pleading stage, a complaint alleging claims under Section 10(b) and Rule 10b-5 must not only 26 meet the requirements of Federal Rule of Civil Procedure 8, but also satisfy the heightened 27 pleading requirements of both Federal Rule of Civil Procedure 9(b) and the Private Securities 1 Cir. 2012). Under Rule 9(b), claims alleging fraud are subject to a heightened pleading 2 requirement, which requires that a party “state with particularity the circumstances constituting 3 fraud or mistake.” Fed. R. Civ. P. 9(b). Additionally, all private securities fraud complaints are 4 subject to the “more exacting pleading requirements” of the PSLRA, which require that the 5 complaint plead with particularity both falsity and scienter. Zucco Partners, LLC v. Digimarc 6 Corp., 552 F.3d 981, 990 (9th Cir. 2009), as amended (Feb. 10, 2009). 7 III. REQUEST FOR INCORPORATION BY REFERENCE AND JUDICIAL NOTICE 8 Defendants request that the Court incorporate by reference or take judicial notice of 9 Exhibits 1–20 to the Declaration of Marie C. Bafus. Dkt. No. 52. Plaintiff requests that the Court 10 take judicial notice of the consensus estimate from the Declaration of John T. Jasnoch. Dkt. No. 11 60. 12 A. Incorporation by Reference 13 In the Ninth Circuit, incorporation by reference is a doctrine that “treats certain documents 14 as though they are part of the complaint itself.” Khoja v. Orexigen Therapeutics, 899 F.3d 988, 15 1002 (9th Cir. 2018). A document may be incorporated by reference into a complaint “if the 16 plaintiff refers extensively to the document or the document forms the basis of the plaintiff’s 17 claim.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). “Once a document is deemed 18 incorporated by reference, the entire document is assumed to be true for purposes of a motion to 19 dismiss, and both parties—and the Court—are free to refer to any of its contents.” In re NVIDIA 20 Corp. Sec. Litig., 768 F.3d 1046, 1058 n.10 (9th Cir. 2014) (internal quotation marks and citation 21 omitted). Although the truth of an incorporated document may not be considered solely to dispute 22 well-pled facts, the Court need not accept as true conclusory allegations that are contradicted by 23 documents referenced in the complaint. See In re Eventbrite, Inc. Securities Litigation, 2020 WL 24 2042078, at *7 (N.D. Cal. Apr. 28, 2020). 25 Defendants seek to incorporate Exhibits 1–15 and 18–20 from the Bafus Declaration into 26 the Amended Complaint. Plaintiff does not contest incorporation by reference for Exhibits 1, 6–12 27 and 19, but opposes the remainder of Defendants’ request. The Court finds that Exhibits 1–15, 18, 1 incorporate these documents by reference. 2 The Court declines to incorporate by reference Exhibit 20. This document consists of a 3 table reflecting SentinelOne’s common stock closing prices from June 1, 2022 to February 15, 4 2024. Although Plaintiff makes allegations about SentinelOne’s stock prices, the Amended 5 Complaint does not specifically refer to the table in the exhibit. 6 B. Judicial Notice 7 Under Federal Rule of Evidence 201, a court may take judicial notice of a fact “not subject 8 to reasonable dispute because it . . . can be accurately and readily determined from sources whose 9 accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b)(2). Accordingly, a court may 10 take “judicial notice of matters of public record,” but “cannot take judicial notice of disputed facts 11 contained in such public records.” Khoja, 899 F.3d at 999 (citation and quotations omitted). The 12 Ninth Circuit has clarified that if a court takes judicial notice of a document, it must specify what 13 facts it judicially noticed from the document. See id. 14 i. Defendants’ Request for Judicial Notice 15 Defendants contend that all of the exhibits to the Bafus Declaration are subject to judicial 16 notice. The Court agrees. As for exhibits 1–15 and 18–19, which the Court incorporated by 17 reference into the AC, the Court also finds that these documents are properly considered under the 18 doctrine of judicial notice. 19 Exhibits 1–9, 11, and 16–19 are documents that SentinelOne publicly filed with the SEC. 20 These documents are not subject to reasonable dispute, and the “accuracy” of these publicly filed 21 SEC documents “cannot reasonably be questioned.” See Waterford Twp. Police v. Mattel, Inc., 22 321 F. Supp. 3d 1133, 1143 (C.D. Cal. 2018) (granting judicial notice of transcripts of excerpts of 23 SEC filings); In re Aqua Metals, Inc. Sec. Litig., 2019 WL 3817849, at *5 (N.D. Cal. Aug. 14, 24 2019) (taking judicial notice of SEC filings); Wochos v. Tesla, Inc., 2018 WL 4076437, at *2 25 (N.D. Cal. Aug. 27, 2018) (SEC filings subject to judicial notice); Dreiling v. Am. Exp. Co., 458 26 F.3d 942, 946 n.2 (9th Cir. 2006) (noting that SEC filings are subject to judicial notice). 27 Exhibits 10 and 12–15 are transcripts of earnings calls. These documents are not subject to 1 routinely take judicial notice of transcripts of calls with and presentations to investors in securities 2 cases. See In re Splunk Inc. Sec. Litig., 592 F.Supp.3d 919, 929 (N.D. Cal. 2022) (taking judicial 3 notice of transcripts of calls with and presentations to analysts and investors); Forsyth v. HP Inc., 4 2021 WL 1391501, at *4–5 (N.D. Cal. Apr. 13, 2021) (taking judicial notice of conference call 5 transcripts). 6 Exhibit 20 is a table reflecting SentinelOne’s common stock closing prices from June 1, 7 2022 to February 15, 2024. Such historical stock prices are publicly available and not subject to 8 reasonable dispute. See Kampe v. Volta Inc., 2024 WL 308262, at *7 (N.D. Cal. Jan. 26, 2024) 9 (taking judicial notice of historical stock prices). 10 Accordingly, the Court takes judicial notice of all the exhibits in the Bafus Declaration for 11 the purpose of considering what was disclosed to the market. In doing so, the Court does not 12 assume the truth of any of the facts asserted in those documents other than the stock price data. 13 See Wochos, 2018 WL 4076437, at *2. 14 ii. Plaintiff’s Request for Judicial Notice 15 Plaintiff asks the Court to take judicial notice of the consensus estimate provided in the 16 Jasnoch Declaration. Jasnoch bases this consensus estimate on a review of three analyst reports 17 covering the stock for the relevant quarters. Dkt. No. 60 ¶¶ 2–5. Plaintiff does not request judicial 18 notice of the underlying analyst reports, and only requests judicial notice of the consensus estimate 19 Jasnoch derives from the reports. Id. Defendants oppose the request. Because the consensus 20 estimate provided by Plaintiff’s counsel is subject to factual dispute, the Court declines to take 21 judicial notice of the estimate. 22 IV. DISCUSSION 23 A. Section 10(b) and Rule 10b-5 24 In their motion to dismiss, Defendants argue that the many of challenged statements fall 25 under the PSLRA safe harbor and that Plaintiff has failed to plead actionable misstatements or 26 omissions or a strong inference of scienter. 27 i. Challenged Statements 1 First, in its 10-Q and 10-K reports throughout the Class Period, SentinelOne defined ARR 2 as “the annualized revenue run rate of our subscription and capacity contracts at the end of a 3 reporting period, assuming contracts are renewed on their existing terms for customers that are 4 under contracts with us.” AC ¶¶ 93, 97, 100, 103. Relatedly, Defendants made statements in 5 SentinelOne’s 10-Q and 10-K reports allegedly “differentiating ARR from revenue.” See Dkt. No. 6 59 at 18:16; AC ¶¶ 93, 97, 100, 103. Plaintiff challenges these statements as false and misleading 7 because the ARR figure included non-guaranteed amounts for various “consumption and usage” 8 charges for excess usage services or for additional optional services that the customer was not 9 committed to use under their existing contracts, and/or otherwise included assumptions that some 10 customers would spend more going forward than what was reflected in their existing contractual 11 commitments. AC ¶¶ 94, 98, 101, 104. Plaintiff argues that excess “consumption and usage” 12 charges, optional additional service charges, or assumptions of spending exceeding existing 13 contractual commitments did not fall within SentinelOne’s ARR definition. Id. Plaintiff further 14 argues that because the ARR figures included these non-guaranteed inputs, the metric amounted to 15 a partial revenue forecast, rendering statements differentiating ARR from revenue false and 16 misleading. Id. 17 Second, the 10-Q and 10-K reports included SentinelOne’s ARR figures. Specifically, 18 Plaintiff challenges the ARR figures from the Q1 FY 2023 10-Q report; the Q2 FY2023 10-Q 19 report; the Q3 FY2023 10-Q report; and the FY2023 10-K report. AC ¶¶ 93, 97, 100, 103.1 20 Defendants Weingarten and Bernhardt repeated the same statements regarding the ARR metrics 21 during the Q1 FY 2023, Q2 FY2023, Q3 FY2023 and FY23 earnings calls. Id. ¶¶ 94, 98, 101, 22 104. Plaintiff challenges these statements as false and misleading because the figures double- 23 counted amounts for certain contracts and included excess data charges, optional additional 24 25

26 1 Defendants later corrected each of the reported ARR figures. Namely, Defendants reduced the ARR reported in the Q1 FY 2023 10-Q from $339 million to $322 million; the ARR reported in 27 the Q2 FY 2023 10-Q from $438.6 million to $417 million; the ARR reported in the Q3 FY 2023 1 service charges or otherwise accounted for spending exceeding existing contractual commitments. 2 Id. 3 Third, Defendants Weingarten and Bernhardt certified the contents of the Company’s 10-K 4 and 10-Q reports throughout the Class Period. Id. ¶¶ 95, 99, 102, 105. Plaintiff argues that 5 because SentinelOne lacked adequate controls to ensure that its reporting of ARR was not 6 materially false and misleading, the certifications themselves were false and misleading. 7 ii. Falsity 8 Defendants contend that the statements challenged in the AC are not materially false or 9 misleading. “Falsity is alleged when a plaintiff points to [the] defendant’s statements that directly 10 contradict what the defendant knew at that time.” Khoja, 899 F.3d at 1008 (alteration in original). 11 “In setting forth the reasons why they contend that each challenged statement is misleading, 12 securities plaintiffs may rely either on an affirmative misrepresentation theory or an omission 13 theory.” Wochos, 985 F.3d at 1188 (citing 17 C.F.R. § 240.10b–5(b)). “Under Rule 10b–5, an 14 affirmative misrepresentation is an ‘untrue statement of a material fact.’” Id. “A statement is 15 misleading if it would give a reasonable investor the impression of a state of affairs that differs in 16 a material way from the one that actually exists.” Retail Wholesale & Dep’t Store Union Local 17 338 Ret. Fund v. Hewlett-Packard Co., 845 F.3d 1268, 1275 (9th Cir. 2017) (quotations and 18 alterations omitted) (citation omitted). “To be misleading, a statement must be ‘capable of 19 objective verification.’” Id. (internal citation omitted). 20 “Even if a statement is not false, it may be misleading if it omits material information.” 21 Khoja, 899 F.3d at 1008–09. “An omission is material when there is a substantial likelihood that 22 the disclosure of the omitted fact would have been viewed by the reasonable investor as having 23 significantly altered the total mix of information available.” Irving Firemen’s Relief & Ret. Fund 24 v. Uber Tech., 398 F. Supp. 3d 549, 555–56 (N.D. Cal. 2019) (quotation and citation omitted). 25 a. Statements Relating to the ARR Inputs 26 Plaintiff contends that despite assuring investors that ARR was not a revenue forecast and 27 publishing a definition of ARR that was based on a snapshot of “subscription and capacity 1 in excess of contractual limits, which customers were under no obligation to incur. As a result, 2 Plaintiff argues, Defendants materially overstated the reported ARR. 3 The Court is not convinced that the definition of ARR necessarily precluded the inclusion 4 of variable overage fees, rendering the ARR definition of false. However, given the weakness of 5 the scienter allegations, the Court grounds its decision to dismiss based on Plaintiff’s failure to 6 allege a strong inference of scienter. Accordingly, the Court need not decide for purposes of this 7 motion whether Plaintiff adequately alleged falsity as to the ARR definition. 8 b. Statements Concerning ARR Figures 9 Plaintiff argues that because the definition of ARR omitted material information, the ARR 10 figures provided in the relevant 10-Q and 10-K reports and repeated by the individual Defendants 11 were also false and misleading. Here, the Court again need not decide for purposes of this motion 12 whether Plaintiff adequately alleged falsity as to the ARR figures. 13 Plaintiff separately argues that these same representations were false and misleading 14 because Defendants admitted that the ARR figures were inaccurate due to double-counting errors. 15 Defendants do not appear to contest these allegations of falsity on these grounds. The Court finds 16 that Plaintiff adequately alleged the ARR figures to be false and misleading due to these double- 17 counting errors. See Kampe v. Volta Inc., 2024 WL 308262, at *31 (N.D. Cal. Jan. 26, 2024) 18 (finding accounting violation recognized by Defendants to be plausibly false and misleading); In 19 re Connetics Corp. Sec. Litig., 2008 WL 3842938, at *10 (N.D. Cal. Aug. 14, 2008) (“no dispute 20 between the parties that defendants’ financial statements were misstated” as a result of accounting 21 errors and, accordingly, “only scienter” was “at issue.”) 22 c. Statements Concerning Adequate Controls 23 Plaintiff alleges that Defendant Weingarten and Defendant Bernhardt’s Sarbanes-Oxley 24 certifications were false because there were alleged “internal control” issues that resulted in 25 recording and renewal inaccuracies. Dkt. 59 at 18–19. In support of this contention, Plaintiff 26 points to statements from Confidential Witness 2 (“CW2”), who served as a “senior manager in 27 the Finance department” and allegedly assisted with ARR calculations. AC ¶ 56. According to 1 CW2, SentinelOne’s internal controls caught at least some of the double-counting of revenue 2 before the Class Period began. Id. 3 Critically, CW2’s tenure at the company ended in early 2022, before the start of the Class 4 Period. Id. CW2’s insights into practices before the class period alone do not render the 5 certifications of adequate controls during the Class Period to be false and misleading. If anything, 6 allegations that the controls in place caught at least some of the relevant errors prior to the Class 7 Period cut against an inference of inadequate controls. As such, the Court does not find the 8 Sarbanes-Oxley certifications to be plausibly alleged to be false or misleading. 9 iii. Scienter 10 The PSLRA requires a plaintiff to specify each statement alleged to have been misleading, 11 the reason or reasons why the statement is misleading, and show that the allegations “give rise to a 12 strong inference that the defendant acted with the required state of mind.” See Schueneman v. 13 Arena Pharm. Inc, 840 F.3d 698, 705 (9th Cir. 2016) (quotations and citation omitted). Thus, a 14 plaintiff’s burden “is to allege sufficiently particular facts to demonstrate a strong inference of 15 scienter—a mental state that not only covers ‘intent to deceive, manipulate, or defraud,’ but also 16 ‘deliberate recklessness.’” Id. (citations omitted). The Ninth Circuit has defined “deliberate 17 recklessness” as more than “mere recklessness or a motive to commit fraud.” See Zucco, 552 F.3d 18 at 991. “[D]eliberate recklessness is ‘an extreme departure from the standards of ordinary care . . . 19 which presents a danger of misleading buyers or sellers that is either known to the defendant or is 20 so obvious that the actor must have been aware of it.’” Schueneman, 840 F.3d at 705 (quoting 21 Zucco, 552 F.3d at 991 (internal quotation marks omitted)). “A complaint will survive,” the 22 Supreme Court has instructed, “only if a reasonable person would deem the inference of scienter 23 cogent and at least as compelling as any opposing inference one could draw from the facts 24 alleged.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007). “All in all, 25 though not impossible, this ‘is not an easy standard to comply with—it was not intended to be— 26 and plaintiffs must be held to it.’” Schueneman, 840 F.3d at 705 (quoting Eminence Capital, LLC 27 v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (per curiam)). Although some facts might be 1 consistently refrains from co-mingling the inquiries. Glazer Cap. Mgmt., L.P. v. Forescout 2 Techs., Inc., 63 F.4th 747, 766 (9th Cir. 2023). 3 “[The] [C]ourt conducts a dual inquiry when assessing whether the strong inference 4 standard is met: first, it determines whether any one of the plaintiff's allegations is alone sufficient 5 to give rise to a strong inference of scienter; second, if no individual allegations are sufficient, it 6 conducts a ‘holistic’ review to determine whether the allegations combine to give rise to a strong 7 inference of scienter.” Id. (quoting Zucco, 552 F.3d at 992). 8 a. Direct Knowledge 9 Plaintiff contends that Defendants’ knowledge of facts contrary to their representations to 10 investors is sufficient to allege scienter. According to Plaintiff, Defendants effectively conceded 11 in their corrective disclosures on June 1, 2023 that they knew all along that projections of excess 12 data usage charges were being included in ARR. Plaintiff argues that Defendants only removed 13 such assumptions from the ARR calculation once “they realized they could no longer hide what 14 they were doing from the market.” AC ¶ 52. 15 Here, Plaintiff effectively asks the Court to infer scienter based on an inference that the 16 statements were false and misleading.2 Absent further supporting facts, Plaintiff may not 17 bootstrap Defendants’ acknowledgments that the ARR figures turned out to be inaccurately 18 determined into an inference that Defendants deliberately tried to mislead investors or were 19 deliberately reckless in making the original representations. See Maguire Fin., LP v. PowerSecure 20 Int’l, Inc., 876 F.3d 541, 548 (4th Cir. 2017) (“Appellant alleges facts that permit an inference that 21 Hinton knew his statement was false, and then asks us to infer from that inference that Hinton 22 acted with scienter. We decline to do so because stacking inference upon inference in this manner 23 violates the statute’s mandate that the strong inference of scienter be supported by facts, not other 24 inferences.”); Kampe v. Volta Inc., 2024 WL 308262, at *31 (N.D. Cal. Jan. 26, 2024 (citing 25

26 2 Plaintiff’s briefing points to consensus estimates that Defendants hoped to reach as evidence of motivation to overstate the ARR metrics. See Dkt. No. 59 at 21. Plaintiff does not allege these 27 facts in the Amended Complaint and the Court does not take judicial notice of the consensus 1 DSAM Glob. Value Fund v. Altris Software, Inc., 288 F.3d 385, 390 (9th Cir. 2002) (“However, 2 the mere publication of inaccurate accounting figures, or a failure to follow GAAP, without more, 3 does not establish scienter.”) (citation and quotations omitted). 4 b. Confidential Witness Allegations 5 Plaintiff also points to information from CW2 as probative of scienter. As noted, CW2 6 explains that before the Class Period, the Finance department identified errors in the calculation of 7 ARR that were identical to the errors that Defendants acknowledged in their corrective 8 disclosures. Plaintiff argues that these allegations demonstrate that Defendants knew that double- 9 counting occurred and failed to take steps to remedy the issue before making the challenged 10 statements. 11 CW2’s account does not support an inference of scienter because the Amended Complaint 12 does not provide sufficient indicia of reliability for the witness. Plaintiff fails to allege facts 13 suggesting that CW2 had any interactions with the individual Defendants or was in a position to 14 know anything about the individual defendants’ state of mind. See Hampton v. Aqua Metals, Inc., 15 2020 WL 6710096, at *14 (N.D. Cal. Nov. 16, 2020) (disregarding confidential witness statements 16 where complaint did not identify who the confidential witness reported to or the nature of his 17 relationship to the individual defendants); Police Ret. Sys. Of St. Louis v. Intuitive Surgical, Inc., 18 2012 WL 1868874, at *20 (N.D. Cal. May 22, 2012) (disregarding statements of confidential 19 witnesses who did not directly communicate with defendants), aff’d, 759 F.3d 1051 (9th Cir. 20 2014). Further, as noted, CW2’s tenure at the Company ended before the class period, further 21 attenuating the relevance of their insights. AC ¶ 56; see Aqua Metals, 2020 WL 6710096, at *14 22 (disregarding confidential witness statements in support of scienter where confidential witness did 23 not work at company during relevant period); In re Silicon Image, Inc. Sec. Litig., 2007 WL 24 2778414, at *2 (N.D. Cal. Sept. 21, 2007) (rejecting scienter assertions by confidential witness 25 about events post-dating employment), aff’d, 325 F. App’x 560 (9th Cir. 2009). Even if Plaintiff 26 remedied these pleading deficiencies, allegations that SentinelOne maintained controls to detect 27 and correct these accounting errors cuts against an inference that Defendants knowingly allowed c. Suspicious Individual Trading Activity 1 Plaintiff alleges that Defendants Weingarten and Bernhardt both sold stock during the 2 Class Period, benefiting from the inflated stock price before Defendants disclosed the truth. See 3 AC ¶¶ 67, 74. Defendant Weingarten sold 1,420,447 SentinelOne shares during the class period 4 for roughly $22.82 million, while Bernhardt sold 44,524 shares during the class period for roughly 5 $840,573. Id. Plaintiff points to Weingarten’s stock sales as being particularly indicative of 6 scienter because they took place over the course of just three consecutive days in mid-December 7 2022 and were “effected in connection with year-end financial planning” rather than a 10b-5 plan. 8 Id. ¶¶ 67, 71. 9 “‘To evaluate suspiciousness of stock sales, [courts] consider, inter alia, three factors: (1) 10 the amount and percentage of shares sold; (2) timing of the sales; and (3) consistency with prior 11 trading history.’” Intuitive Surgical, Inc., 2012 WL 1868874, at *22 (N.D. Cal. May 22, 12 2012), aff’d, 759 F.3d 1051 (9th Cir. 2014) (quoting Nursing Home Pension Fund, Loc. 144 v. 13 Oracle Corp., 380 F.3d 1226, 1232 (9th Cir. 2004)). While insider trading may serve as 14 circumstantial evidence of scienter, it “is suspicious only when it is dramatically out of line with 15 prior trading practices at times calculated to maximize personal benefit from undisclosed inside 16 information.” Police Ret. Sys. Of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1063–64 (9th 17 Cir. 2014) (quoting Zucco, 552 F.3d at 1005). 18 Here, Plaintiff fails to allege any trading history to compare either Defendant’s sales to 19 previous activity. As such, the Court cannot conclude that these sales are plausibly alleged to be 20 suspicious at all. See id.; Aqua Metals, 2020 WL 6710096, at *16 (“Plaintiffs must provide a 21 meaningful trading history for purposes of comparison” against a defendant’s pre-class period 22 trades); Ng v. Berkeley Lights, Inc., 2024 WL 695699, at *15 (N.D. Cal. Feb. 20, 2024) (rejecting 23 trading allegations outright where complaint failed to allege defendants’ prior trading history). 24 d. Core Operations Doctrine 25 Plaintiff argues that the Court should also impute knowledge of falsity due to the 26 importance of the ARR metric and “[b]y virtue of their positions at SentinelOne.” AC ¶¶ 119, 121. 27 1 either specific admissions by one or more corporate executives of detailed involvement in the 2 minutia of a company’s operations” or “witness accounts demonstrating that executives had actual 3 involvement in creating false reports.” Intuitive Surgical, 759 F3d at 1062. But Plaintiff does not 4 allege that the individual defendants played any role in calculating ARR or accessed the relevant 5 data. Nor does Plaintiff allege that anyone informed the individual defendants of any potential 6 inaccuracies in this data. The Court does not find that the core operations doctrine supports an 7 inference of scienter. 8 e. Holistic Analysis 9 The Court may consider “whether any of the plaintiff’s allegations, standing alone, are 10 sufficient to create a strong inference of scienter,” and if not, must “conduct a ‘holistic’ review of 11 the same allegations to determine whether the insufficient allegations combine to create a strong 12 inference of intentional conduct or deliberate recklessness.” Zucco, 552 F.3d at 992; see also 13 Tellabs, 551 U.S. at 323–24; In re VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 694, 703 (9th Cir. 14 2012). 15 In support of scienter, Plaintiff points to Defendants’ acknowledgements that the ARR 16 metrics were inaccurately determined; inadequately supported confidential witness testimony 17 suggesting that double-counting occurred (and was remedied) before the Class Period; allegations 18 of individual trading without a reference point to determine if such trading was suspicious; and 19 allegations that do not permit the Court to impute knowledge of falsity under the core operations 20 doctrine. Weighing these allegations holistically, the Court still cannot make the “strong 21 inference” that Defendants took these actions with an intent to defraud investors for their own 22 benefit. In all, the inferences the Court could draw from the limited allegations relating to scienter 23 are not as compelling as competing innocent inferences. The more convincing theory is that 24 Defendants failed to catch certain accounting errors and at most might unintentionally have misled 25 investors by defining ARR with less than ideal clarity. As such, the Section 10(b) claim fails. The 26 Court GRANTS the motion to dismiss the Section 10(b) claim WITH LEAVE TO AMEND.3 27 V. SECTION 20(A) CLAIM Because Plaintiff does not adequately plead a Section 10(b) claim, his Section 20(a) claim fails. See Lake v. Zogenix, Inc., 2020 WL 3820424, at *13 (N.D. Cal. Jan. 27, 2020). The Court ° GRANTS the motion to dismiss the Section 20(a) clam WITH LEAVE TO AMEND. VI. CONCLUSION For the reasons stated above, the Court GRANTS the motion to dismiss WITH LEAVE ° TO AMEND. ’ Since the Court cannot conclude that amendment would be futile, Plaintiff may file an ° amended complaint within 28 days of the date of this order. When preparing an amended ° complaint, Plaintiff is further ordered to prepare a statement-by-statement chart of the information 0 required by 15 U.S.C. § 78u-4(b)(1) and (2) that specifically identifies: (a) each statement or " action alleged to have been false or misleading, (b) the reasons the statement or action was false, misleading, or deceptive when made, and (c) if an allegation regarding the statement or omission is made on information and belief, all facts on which the belief is formed. The chart should clearly S identify which statements or omissions are attributable to which Defendants and include a detailed statement of the facts giving rise to a strong inference that each Defendant acted with the required state of mind. Plaintiff should also summarize their allegations regarding what each Defendant = " knew with regards to the statement or omission and when they knew it. Such a chart should be 18 included within any amended complaint or attached to any amended complaint. For guidance on the format for such a chart, the Court directs Plaintiff to review In re NVIDIA Corp. Sec. Litig., * 18-cv-07669-HSG, Dkt. No. 149-2. IT IS SO ORDERED. Dated: 7/2/2024

24 HAYWOOD S. GILLIAM, JR. 25 United States District Judge □ on Plaintiff’s failure to plead a strong inference of scienter. Accordingly, it need not decide for 27 purposes of this motion whether the safe harbor applies to the statements at issue, because scienter 28 is inadequately pled under any standard.