The Rise and Fall of Zoom: How Security Issues Affected the Pandemic's Superstar

Court: N.D. California

Case: 3:20-cv-02353

From IPO to Pandemic Superstar

Zoom Video Communications ZM went public in April 2019, raising $357 million. Just a year later, during the height of COVID-19, it became a global phenomenon.

With remote work and schooling surging, Zoom’s stock skyrocketed nearly 900% in 2020, cementing its place as the pandemic’s breakout tech star. CEO Eric Yuan praised the momentum, calling it a new growth trajectory for the company.

Security Flaws and Corporate Bans

Behind the hype, security flaws started to emerge. In early 2020, researchers revealed Zoom’s “end-to-end encryption” claims were misleading, relying on weaker, non-standard encryption. The FBI warned of “Zoombombing” incidents disrupting classrooms and government meetings.

Major clients reacted—SpaceX banned Zoom in March 2020, and Google soon prohibited its use on corporate devices. Reports showed Zoom had known of vulnerabilities but failed to disclose them fully.

Investor Lawsuits and Market Fallout

As revelations spread, Zoom’s stock dropped to $150 amid concerns over privacy and security. Investors filed class-action lawsuits, accusing the company of overstating its encryption standards, downplaying vulnerabilities, and improperly sharing user data with third parties like Facebook.

Settlement and the Road Ahead

Now, Zoom has agreed to pay $150 million to settle investor claims, though it denied wrongdoing, and it's accepting late claims. Since 2020, the company has enhanced its platform with default password protections, waiting rooms, and stronger host controls. Despite improvements, Zoom faces stiff competition from Microsoft Teams and Google Meet.

Its challenge now is not only technological but reputational—regaining trust in a world where privacy and security define market leaders.