Fortinet Accused of Securities Fraud Over Firewall Forecasts

A pair of sophistication motion lawsuits filed not too long ago accuse Fortinet of violating federal securities legal guidelines by making deceptive statements a couple of “document” firewall refresh cycle.

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Pension funds in Oklahoma and Rhode Island accused Fortinet of deceptive buyers by touting in late 2024 a serious firewall refresh cycle for 1 / 4 of its set up base, predicting it might yield greater than $400 million. However Fortinet allegedly knew the refresh concerned older merchandise representing a small proportion of enterprise, and pushed by way of a lot of the refresh sooner than what they informed buyers.

“In 2026, a document variety of FortiGates will attain the tip of their assist life cycle, and we anticipate these clients to begin the refresh cycle for these merchandise someday in 2025,” former Fortinet Chief Monetary Officer Keith Jensen informed buyers in November 2024. “I feel that we see the end-of-life of those merchandise beginning within the second half of 2026.”

As soon as it grew to become obvious in August 2025 the firewall income cycle would not have a cloth influence on income, Fortinet’s inventory worth dropped by greater than 22%, based on the lawsuits. Plaintiffs additionally allege insider buying and selling, noting that CEO Ken Xie and CTO Michael Xie offered tens of millions of {dollars} in inventory simply days earlier than the August earnings name. Fortinet did not reply to a number of requests for remark (see: Palo Alto, Fortinet, Examine Level Management Firewall Gartner MQ).

Lawsuit Says Firewall Refresh Did not Stay As much as Expectations

On the middle of the lawsuits is Fortinet’s promotion of a large refresh cycle for its FortiGate firewalls, with executives claiming it was “by far the biggest” refresh alternative within the firm’s historical past and it might drive not solely product gross sales but in addition service upsells and cross-selling alternatives. Analysts responded favorably, and the corporate’s inventory worth jumped almost $9 per share in a single day in response.

“We do not anticipate the shoppers to attend till the 11[th] hour to make the change,” Jensen informed buyers in November 2024. “For bigger enterprises, they’d undergo one other certification, [proof of concept] undertaking maybe as a part of that earlier than they place them in service.”

In February 2025, Fortinet described “early improve motion” and forecasted stronger exercise within the coming quarters, whereas within the spring, executives reiterated the significance of the refresh and described it as “10 occasions bigger” than prior cycles, based on the lawsuit. However after the August earnings name, the go well with stated analysts instantly downgraded Fortinet and criticized the corporate’s earlier statements.

“Within the fourth quarter [of 2024], we noticed early improve motion with giant enterprises, each on shopping for plans and precise purchases,” Jensen informed buyers in February 2025. “We anticipate the momentum to construct as we transfer into the second half of 2025 and as we get nearer to the 2026 [ending] service dates.”

The lawsuits allege that executives knew the refresh cycle was materially much less impactful than they informed the market because the refresh was principally made up of legacy fashions that represented a small proportion of the corporate’s enterprise. Executives allegedly knew many shoppers would not improve since that they had “extra capability” from firewalls purchased in the course of the pandemic and did not want to exchange growing old {hardware}.

“As we look ahead to proof of a significant refresh cycle, which administration reiterated we may see within the again half of this yr, we expect the inventory will stay vary sure as we look ahead to proof of a significant refresh cycle that we expect is already largely priced in at these ranges,” analysts wrote after Fortinet’s Could 2025 earnings name.

Lawsuit Alleges Insider Inventory Gross sales Had been Suspiciously Timed

Fortinet executives revealed throughout an August 2025 earnings name that the corporate already accomplished 40 to 50% of the refresh cycle by June 30, with a good portion of upgraded gadgets being too previous and too small in worth to materially have an effect on present revenues. This allegedly blindsided buyers who anticipated that income from the refresh can be forthcoming within the second half of 2025 and all through 2026.

“I do consider it is in that means we attempt to assist the client to improve the brand new SASE firewall as an alternative of getting too huge a enterprise influence,” CEO Ken Xie informed buyers in August 2025. “As a result of, like I stated, the tip of service, that is the product being there 12, 15 years in the past. It is a fairly small proportion of our whole enterprise.”

The August 2025 earnings name triggered a wave of analyst skepticism, with questions round why the refresh hadn’t delivered the promised upside and whether or not product income excluding refresh gross sales had gone flat or damaging. Executives gave ambiguous solutions, based on the lawsuit, with CFO Christiane Ohlgart acknowledging that that they had restricted knowledge on precise buyer habits for a lot of items.

“We have now deal with on the decrease finish of the firewalls the place it is with enterprise clients,” Ohlgart informed buyers in August 2025. “In retail or different situations, OT situations, the place it is tougher for us to foretell. And we are able to solely monitor registration charges and related is within the decrease finish. The expectations by the Road may need been somewhat bit greater.”

Each complaints allege suspiciously timed insider inventory gross sales, with CEO Ken Xie promoting $15 million and CTO Michael Xie promoting $47 million price of inventory simply two days earlier than the corporate’s August earnings name, whereas Jensen offered $11.5 million of inventory between November 2024 and August 2025. These gross sales allegedly occurred whereas the executives had private data concerning the influence of the refresh cycle.

“By artificially inflating Fortinet’s inventory worth, defendants deceived plaintiff and the category … inflicting them to undergo substantial losses, i.e., damages beneath the federal securities legal guidelines, when the reality was revealed,” the Rhode Island Retirement System wrote Oct. 16.