Southern District Of New York Dismisses Putative Securities Class Action Against Artificial Intelligence Company With Prejudice For Failure To Plead Materiality Or Scienter

On September 28, 2026, Judge John P. Cronan of the United States District Court for the Southern District of New York granted a motion to dismiss a putative securities fraud class action against an artificial intelligence company (the “Company”), and certain of its former officers (the “Individual Defendants”), alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder. In re UiPath, Inc. Sec. Litig., No. 24 Civ. 4702 (S.D.N.Y. Sept. 28, 2026). The Court had dismissed an earlier version of plaintiffs’ complaint in July 2025 with leave to amend, and plaintiffs thereafter filed a Second Amended Complaint (“SAC”) with additional allegations from four former employees. We previously covered the District Court’s earlier dismissal here. In dismissing the SAC, the Court held that plaintiffs failed to adequately plead materiality and scienter.

According to the SAC, the Company, a provider of robotic process automation and artificial intelligence software, announced in September 2022 that it would reposition its strategy to focus on selling high-value, multi-year deals to its largest customers. Plaintiffs allege that the Company reported strong financial results in late 2023 and early 2024, and that the Individual Defendants touted those results on earnings calls. However, plaintiffs allege that, beginning in 2023, the Company changed the way it structured and compensated deals, which discouraged multi-year “ramped” contracts and forced customers onto a more expensive platform. Plaintiffs allege that this caused customer “churn” by driving existing customers to decline to renew, reduce their commitments, or terminate their contracts. Plaintiffs further allege that the Company’s executives knew of this alleged churn through internal data systems and meetings, but misled investors about the success of the turnaround strategy during the putative class period of December 1, 2023, to May 29, 2024. Plaintiffs allege that the purported scheme was revealed on May 29, 2024, when the Company (i) cut its full-year revenue guidance by approximately $150 million, and (ii) announced the resignation of its CEO, which allegedly caused a sharp decline in the Company’s stock price.

The Court first examined materiality as to the Company’s risk disclosures, which plaintiffs alleged warned that declines or delays in customer renewals could harm its future operating results, without disclosing that those risks had allegedly already materialized. The Court held that these statements were not misleading, reasoning that the disclosures used generic language, concerned risks relating to subscription-based software companies, and did not present those risks as “merely hypothetical.” The Court held that, because the Company never represented that there was no customer churn, it had no duty to disclose that churn was occurring, as “a corporation is not required to disclose a fact merely because a reasonable investor would very much like to know that fact.”

The Court next addressed materiality as to two alleged misstatements concerning the Company’s execution and deal quality: (i) the CFO’s alleged statement that the Company was executing against its strategy and seeing results in “deal quality,”; and (ii) the CEO’s alleged remark that “there’s no doubt there’s better execution.” The Court acknowledged that whether these statements were actionable presented a closer question, noting that such terms were vague and that plaintiffs identified no objective benchmark by which they could be tested or verified. The Court nevertheless held that the statements were not actionable because plaintiffs failed to plead a strong inference of scienter.

Further addressing scienter, the Court held that plaintiffs failed to allege any fraudulent motive and opportunity. In so holding, the Court rejected plaintiffs’ theory that the Individual Defendants sought to conceal their errors in the hope that good news would overtake bad news, explaining that the desire to protect one’s position and compensation is common to all corporate executives and too generalized to demonstrate scienter.

The Court next addressed whether plaintiffs adequately allege strong circumstantial evidence of conscious misbehavior or recklessness. Although the Court acknowledged that the SAC added detail about the executives’ access to internal churn data through the Company’s sales systems and internal meetings, the Court held that these allegations did not establish scienter. The Court reasoned that knowledge of churn did not contradict defendants’ public statements, because defendants never represented that churn was low—to the contrary, the Company’s CFO had allegedly told investors that churn was concentrated “on the lower end of the market with smaller businesses.” The Court found that plaintiffs’ most specific churn allegations concerned smaller customers, consistent with the Company’s disclosures, while their allegations of churn among large customers were largely anecdotal and lacked particularity. The Court also rejected plaintiffs’ three remaining theories, holding that internal forecasts and sales-target data did not amount to red flags contradicting defendants’ statements, that the core operations doctrine could not fill the gap left by plaintiffs’ other allegations, and that neither the timing of the CEO’s departure nor the temporal proximity between the final challenged statement and the corrective disclosure supported a strong inference of scienter. Because plaintiffs failed to plead scienter as to either Individual Defendant, the Court likewise rejected plaintiffs’ corporate scienter theory, concluding that the more compelling inference was that defendants “simply miscalculated and poorly executed on [a corporate strategy] in a fast-moving and highly competitive industry.”

Having found that plaintiffs failed to adequately plead a primary violation under Section 10(b), the Court dismissed plaintiffs’ Section 20(a) control person liability claim against the Individual Defendants.