Shareholders sue Aruba in US for 'misleading' conduct

Cross-state class action filed with several US law firms fielding further complainants

Yet another networking vendor is under fire regarding allegations about its business practices – this time, Aruba Networks.

A recent Aruba filing with the US Securities and Exchange Commission (SEC) reveals a stockholder class action suit, Mazzafero v Aruba Networks, et al, is pending in the US District Court for northern California.

The lawsuit seeks to recover damages from the company and "certain of its officers and directors" as a result of allegedly improper business practices.

New York-based Pomerantz Grossman Hufford Dahlstrom & Gross alleged in its 23 May complaint on behalf of shareholders that Aruba has made "materially false and misleading statements" regarding its business operations and policies, and in particular, its competitiveness versus rival Cisco.

The complaint further alleges that Aruba knew that Cisco's bundling practices would "greatly undermine" the former's market share but failed to disclose its knowledge.

The practices in question are covered under Sections 10(b) and 20(a) of the US Securities Exchange Act 1934 – general provisions regarding fraud and the liability of persons involved – as well as Rule 10b-5, which is about use of "manipulative or deceptive devices".

Another New York law firm, Lifshitz, and two from Los Angeles, Glancy Binkow & Goldberg, and Todd M Garber – among others – have also been seeking aggrieved shareholders to join the class action, which covers the trading period 17 May 2012 to 16 May 2013.

Aruba's 10Q filing for Q2, however, said the vendor has a strong defence.

"The Company believes that it has meritorious defences to these claims and it intends to defend the litigation vigorously," it wrote.

The Nasdaq-listed vendor reported a loss of $20m (£13m) in the quarter ending 30 April, down from a $6m profit in the same quarter in 2012.

Aruba chief executive and president Dominic Orr, with chief financial officer Michael Galvin, warned investors in the same announcement that profitability in the long term might be out of reach.

"We have a history of losses, with [only] a few quarters of profitability during fiscal 2013, 2012 and 2011," they wrote.

Aruba operates globally through distributors including ScanSource, Synnex and Avnet Logistics, as well as Exclusive Networks in the UK.