Backblaze: Mounting Losses, Lawsuits, Sham Accounting, Insider Selling

Summary

SummaryBackblaze (NASDAQ:BLZE) is a $250 million cloud storage and backup solution provider based in California that operates through two business segments: B2 Cloud Storage allowing “customers to store data” and “developers to build applications,” and Computer Backup that “automatically backs up data” from devices for “virtually unlimited” storage. Since its November 2021 IPO, Backblaze has reported losses every quarter, its outstanding share count has grown by 80%, and its share price has declined by 71%.In October 2024, two former senior employees filed suit against Backblaze, alleging accounting fraud, inflated projections, and whistleblower retaliation. One lawsuit was filed by Backblaze’s former Vice President (“VP”) of Investor Relations, James Kisner, while the other was filed by former Senior Director of Financial Planning & Analysis (“FP&A”), Huey Hall.As soon as Backblaze’s IPO lock-up expired in April 2022, its founders engaged in an aggressive trading plan to sell 10,000 shares a day, along with other potential sales from early employee holders, against “all external capital markets advice” related to the downward pressure that these sales would put on Backblaze’s thinly-traded shares, according to the complaints from the 2 former senior employees.A capital markets consultant warned Backblaze management that the trading plan was “likely breaching its fiduciary duties,” while Backblaze’s VP of Investors Relations warned that the plan could have a “meaningful negative impact on the business,” according to one of the lawsuits. The founders proceeded anyway, driving the stock down to $3.82 by the end of November 2022— 76% lower than its IPO price.4 months into selling his shares, Backblaze co-founder & CTO Brian Wilson wrote in an internal email, “if BLZE goes straight down to zero, each day I sold was beyond totally justified and I won’t regret it” shortly before resigning amidst continued share sales, according to Backblaze’s former VP of Investor Relatio...