One of the world's largest data center operators is settling with a class of investors over accusations of inflating its earnings for more than $40M.

Equinix has agreed to pay a $41.5M settlement to owners of its common stock between May 3, 2019 and March 24, 2024, to resolve a class action lawsuit in which a union investment fund was lead plaintiff, according to a court filing this week first reported by Bloomberg Tax.

The suit was filed after investment research firm Hindenberg Research issued a report in 2024 accusing the data center giant of manipulating its capital expenditures to pump up its adjusted funds from operations, a non-GAAP metric that is key to measuring a REIT's performance.

According to Hindenburg, Equinix shifted what should have been maintenance capital expenditures into growth capital expenditures to boost its AFFO, a metric that was used by Equinix to determine executive bonuses.

The moves allowed Equinix to allegedly tamp down maintenance capex, which was less in the first quarter of 2024 than it was 14 years prior, despite operating five times the number of data centers, according to Hindenburg’s report.

An unidentified former Equinix director told Hindenburg that the data center operator would obtain new serial numbers on equipment being refurbished to make it look like it was new equipment and book it as “growth CapEx.” Equinix was accused by another unidentified former operations director of classifying routine battery replacement as growth capex by characterizing it as replacing a battery system, Hindenburg alleged in its report.

Hindenburg was founded by famed Wall Street short-seller Nate Anderson, who disbanded the research firm in January.

Hindenburg also accused Equinix of overselling power capacity to its data center users in hopes that the customer would never utilize the full amount. While Equinix discloses the amount of its cabinet spaces — the physical shell spaces that house servers — in its portfolio, the firm doesn’t disclose its power utilization rate. As such, former executives alleged to Hindenburg that Equinix could be oversold by as much as 175% on its power capacity.

The alleged pumped-up AFFO metric has allowed executives to cash out $476M in bonuses since Equinix converted to REIT status in 2015, according to Hindenburg.

Equinix was trading at more than $770 per share as of noon Thursday, down from more than $900 a share in January and the $910 per share the stock was trading at before the Hindenburg report was published.

The class action suit was initially filed in May 2024 by investor Wayne Chan, and the Uniformed Sanitationmen's Association Compensation Accrual Fund was named lead plaintiff in August. The settlement still needs approval from the U.S. District Court for the Northern District of California.

Equinix, which owns 260 data centers, appointed Shane Paladin as executive vice president and chief customer and revenue officer earlier this week and named Arquelle Shaw as president of the Americas on Thursday, promoting her from her previous role as senior vice president of sales for the Americas, DataCentre Magazine reported.