Walleye Trading LLC v. MINDBODY, Inc.

Updated: November 7, 2019
Status: Ongoing Case

On November 7, 2019, Labaton Sucharow was appointed lead counsel in a securities class action lawsuit against MINDBODY, Inc. (“MINDBODY” or the “Company”) and certain officers and directors (collectively, “Defendants”).  The MINDBODY Action asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5 promulgated thereunder, on behalf of all former owners of MINDBODY Class A common stock who sold shares during the period from November 7, 2018 through February 15, 2019, both dates inclusive (the “Class Period”), and were damaged thereby (the “Class”).  The Firm represents lead plaintiff, Walleye Trading LLC.

Founded in 2001, MINDBODY is a provider of cloud-based business management software for the wellness services industry, e.g., salons and spas, and a rapidly growing marketplace for wellness services.  The Company offers integrated software and payment platforms to assist wellness business owners run, market, and build their businesses, while engaging consumers by aggregating available classes and appointments, and enabling rapid discovery, booking and payment.  The Company conducted its initial public offering in June 2015.

In early 2018, the Company underwent several successful acquisitions.  Following these acquisitions, which Defendants defined as “pivotal,” investors were repeatedly assured that MINDBODY was on track to successfully integrate the companies, and that the acquisitions offered a substantial value proposition for the Company.  For example, on September 18, 2018, Defendant Richard L. Stollmeyer, the Company's CEO, stated that the respective integrations were “going well,” and that MINDBODY was “positioned to grow [its] marketplace more quickly and to accelerate in all of [its] key markets.”

Unknown to investors at this time, however, was that in the latter half of 2018, Stollmeyer had been in discussions with Vista concerning a potential sale of the Company.  The MINDBODY Board of Directors only became aware of these discussions between Stollmeyer and Vista in late October 2018, when it convened to discuss Vista’s interest in the Company.

On November 6, 2018, Defendants intentionally issued disappointing guidance for the Company’s upcoming fourth quarter 2018 in order to artificially depress the price of the Company’s stock, attributing it to integration issues with MINDBODY’s early 2018 acquisitions.  The market, having previously been informed that the integrations in question were on track, reacted poorly, causing the price of MINDBODY Class A common stock to fall by approximately 20 percent on November 7, 2018.

Shortly thereafter, by press release dated December 24, 2018, Defendants informed investors that the Company’s Board had approved a merger agreement with Vista.  Pursuant to the agreement, holders of the Company’s common stock would receive $36.50 in exchange for their shares, with Vista taking MINDBODY private upon completion.  Defendants touted this as a 68 percent premium to the Company’s December 21, 2018 closing price, which price was still depressed by the surprising and suspiciously timed negative guidance issued on November 6, 2018.

Unknown to MINDBODY investors, however, is that by January 18, 2019, Defendants knew that the Company’s fourth quarter 2018 results had materially exceeded not only current analyst estimates, but also those estimates issued prior to the disappointing November 6, 2018 guidance.

During January and February, Defendants issued proxy materials urging MINDBODY shareholders to vote “FOR” the transaction, touting the price of $36.50 as a substantial premium for MINDBODY shareholders.  These proxy materials, however, failed to disclose the “meaningful” fourth quarter 2018 results necessary for investors to make an informed decision whether to vote in favor of the proposed transaction.

Based, in part, on Defendants’ failure to disclose MINDBODY’s favorable fourth quarter 2018 financial results, which would have raised questions regarding whether the merger consideration was fair, MINDBODY shareholders approved the transaction on February 14, 2019.  The following day, Defendants reported the closing of the transaction, and MINDBODY shareholders received $36.50 in exchange for their shares.

As a result of these material misrepresentations and omissions, MINDBODY shareholders were misled into selling their shares for less than the fair value of those shares, which fair price was greater than $36.50.

Case Materials