(Westlaw) The buyers of cybersecurity company Infosec Learning Inc. provided misleading information about their own business to induce the sellers into accepting equity in it as part of the sale, according to a Delaware Chancery Court lawsuit.
Kowatch et al. v. ACI Learning Holdings LLC et al., No. 2025-1398, complaint filed, 2025 WL 3498773 (Del. Ch. Dec. 2, 2025).
James Kowatch and four other former owners of Infosec Learning say in a Dec. 2 complaint that ACI Learning Holdings LLC and other related parties are liable for common law fraud under Delaware law because the sellers reasonably relied on the defendants’ misrepresentations, causing them to suffer damages.
Finances allegedly misrepresented
Infosec operates as a cybersecurity skills training company.
In August 2023, ACI and Infosec signed a letter of intent for an ACI affiliate to acquire all outstanding shares of Infosec for up to $20 million, the complaint says. Under the terms of the LOI, $9.5 million was due at closing, $6.5 million was due upon Infosec’s meeting certain revenue targets in 2023 and 2024, and $4 million was to be paid in ACI equity, according to the complaint.
The LOI also required ACI to make its best effort to structure the deal so the sellers would qualify for deferral of the capital gains taxes on their $4 million rollover equity, the complaint says.
In October 2023, ACI board Chair Chong Moua provided ACI’s financial information from 2017 through May 2023 to Infosec’s financial adviser, according to the complaint. The plaintiffs allege those numbers became the basis for the evaluation of ACI’s enterprise value and the fairness of the pricing of the rollover equity.
ACI’s affiliate signed a stock purchase agreement and rollover agreement with the sellers of Infosec on Dec. 6, 2023, the complaint says.
Days later, ACI provided its monthly financial results for the period ending in October 2023.
Although the materials Moua provided two months before had reported that ACI’s 2022 earnings before interest, taxes, depreciation and amortization were $14.1 million, the figures provided in December showed ACI had EBITDA of only $6.9 million in 2022, according to the complaint. Additionally, the materials Moua had provided overstated ACI’s 2023 EBITDA by several million dollars over the December figures, the complaint says.
Kowatch, who served as Infosec’s sellers’ representative, alleges that he and the other plaintiffs later discovered that ACI had improperly recognized revenue the company had not yet earned.
Further, the complaint says, ACI was aware around August 2023 that it would see a substantial decrease in revenue due to the U.S. government’s ending funding for a program that paid for military veterans’ enrollment in high tech skills training.
Sale allegedly induced by misrepresentation
The plaintiffs assert that the defendants’ actions in negotiating and consummating the sale agreements amount to common law fraud under Delaware law.
Moua, on behalf of the defendants, made significant material misrepresentations and omissions regarding ACI’s historical revenue in his disclosures to induce the plaintiffs to enter into the stock purchase agreement and rollover agreement, the suit says.
Furthermore, Moua’s disclosures showed growth in revenue over time, when in fact revenues had significantly decreased in 2022 and 2023, the plaintiffs allege.
Additionally, ACI failed to help the plaintiffs obtain a deferral of the capital gains taxes due on the rollover equity, the suit says.
The plaintiffs say they never would have agreed to a deal structure that included two earnouts totaling $6.5 million and $4 million in rollover equity if they had known ACI’s true earnings.
Gary W. Lipkin of Saul Ewing LLP represents the plaintiffs.
By Douglas Mentes