DigitalOcean Holdings, Inc. (DOCN) Lacked Effective Controls Over the Company's Accounting for Income Taxes

A shareholder filed a class action on behalf of all investors who purchased or otherwise acquired DigitalOcean Holdings, Inc. (NASDAQ: DOCN) securities between February 16, 2023 and August 25, 2023. DigitalOcean is an emerging growth company, which purports to offer a cloud computing platform, primarily for small to medium sized businesses who lack adequate resources to support on-premise software development environments.

According to the complaint, during the class period, defendants failed to disclose to investors: (1) that defendants lacked the skills and experience to assess complicated tax matters and therefore did not design or maintain effective controls over the Company’s accounting for income taxes; and (2) that, as a result of the foregoing, defendants’ financial statements during the class period were inaccurate and materially misleading.

On August 3, 2023, DigitalOcean announced that it had “identified certain errors within the unaudited condensed consolidated financial statements for the quarter ended March 31, 2023 as included in our Quarterly Report on Form 10-Q for the three months ended March 31, 2023 filed on May 9, 2023” related to the Company’s accounting for income tax expense, resulting in an overstatement of income tax expense in the quarter of approximately $18 million. The Company would be restating its first quarter 2023 financials, and announced that this restatement would “also include disclosure of an identified material weakness and that our disclosure controls and procedures were not effective as of March 31, 2023.”

The material weakness, however, traced back at least to December 31, 2022, according to DigitalOcean, rendering the Company’s Annual Report for the previous year inaccurate as well. Consequently, the Company conceded that it would also restate its financial statements for Fiscal Year 2022, originally filed with the SEC on February 23, 2023. On this news, DigitalOcean’s stock price declined $11.57 per share, or approximately 24.8%, to close at $35.11 per share on the following trading day, August 4, 2023.

On August 24, 2023, DigitalOcean issued a press release announcing that the Company’s Board of Directors had begun a search for a new CEO to replace defendant Spruill, who would step down as CEO and board member as soon as his successor was appointed. On this news, DigitalOcean’s stock price declined $2.65 per share, or approximately 8.4%, to close at $28.86 per share on August 25, 2023.

What Now: Similarly situated shareholders may be eligible to participate in the class action against DigitalOcean Holdings, Inc. Shareholders who want to act as lead plaintiff for the class must file their motion for lead plaintiff by November 13, 2023. A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation.  You do not have to participate in the case to be eligible for a recovery. If you choose to take no action, you can remain an absent class member.

All representation is on a contingency fee basis. Shareholders pay no fees or expenses.