Nuix should have revealed a failure to hit financial targets that were pitched to investors who bought $1.8 billion in shares when the software company went public, a court has heard.
The Australian Securities and Investments Commission claims the company and its board were negligent, misled the market and engaged in deceptive conduct.
The financial watchdog alleges Nuix breached the law because it did not publicly disclose its financial underperformance after the firm's initial public offering on December 4, 2020.
At the time, 179.5 million shares were offered at a price of $5.31 per share.
As the market opened, the share price increased to just over $8, hitting a peak of $11.86 by January 22 the following year.
Morgan Stanley estimated that between $17 million and $19 million worth of shares were traded daily at the time.
The share value plummeted to around $2.50 by June.
In the IPO's prospectus, the firm claimed it could hit an estimated revenue for the 2021 financial year of $193.5 million and that its annualised contract value would be $199.6 million.
The annualised contract value is the total value of the agreements Nuix had with customers averaged out over the year.
The firm would enter into multi-year contracts with companies and organisations, including the ASIC and US government, and would provide licences to those clients for the use of its software.
As a 19-day trial began in the Federal Court on Monday, ASIC's barrister Jeremy Giles SC said that by New Year's Eve of 2020 - weeks after the float - internal forecasts for Nuix's annualised contract value had dropped to $161.9 million for the 2021 financial year.
Estimates for the first half of FY21 were $17.1 million or 9.6 per cent less than the financial figures used to develop the prospectus prior to the float, he told Justice Scott Goodman.
By April, revenue forecasts were also down to either $185 million or in the range of $180 to $185 million, the court heard.
"What they lost sight of was the need to inform the market," Mr Giles said.
Nuix and its directors allegedly breached the law from January 18, 2021 until April 21 that year by failing to disclose the failure to hit these targets and the reasons behind the underperformance, the court heard.
"It is a question about having put some information into the market, what had to be done if anything," Mr Giles said.
The company could have issued corrective notices on the Australian Securities Exchange or entered into a trading halt while it examined its forecasts to determine whether they were accurate, Mr Giles said.
ASIC's lawsuit does not complain about the prospectus itself.
The executives sued include former executive chairman and CEO Rod Vawdrey, former executive chairman Jeffrey Bleich and then non-executive directors Iain Lobban, Daniel Phillips, and Susan Thomas.
ASIC is seeking court-ordered penalties and orders disqualifying the former Nuix directors from managing corporations.
The trial continues.
