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Slack shareholders class action lawsuit overview:
- Who: The U.S. Supreme Court is reviewing an attempt by Slack Technologies to escape a class action lawsuit filed against it by Fiyyaz Pirani.
- Why: Slack argues Pirani cannot make claims under Section 11 and Section 12 of the Securities Act since he allegedly can not prove he purchased registered Slack shares named in an allegedly misleading registration statement for the company’s direct listing.
- Where: The case is in the U.S. Supreme Court.
- What are my options: Consumers looking for an alternative to Slack may find similar products at Microsoft.
The U.S. Supreme Court is deciding whether to allow Slack Technologies to get out of a class action lawsuit filed by shareholders over the company’s direct listing in 2019 after Salesforce Inc. acquired it for $28 billion in July 2021.
Plaintiff Fiyyaz Pirani claims Slack violated the Securities Act of 1933 by allegedly making misstatements in its registration statement and prospectus about service outages and credits it promised to pay customers in the event of a disruption, Reuters reports.
Further, Pirani argues Slack made misstatements about the competition it faced from Teams, a rival business communication platform operated by Microsoft.
Pirani filed the class action after Slack’s stock price reportedly dipped after it released 118 million shares under its registration statement and an additional 165 million pre-existing and registration-exempt shares.
Slack, meanwhile, is arguing Pirani is unable to prove he purchased registered shares named in the allegedly misleading registration statement for the direct listing, rather than ones exempt from registration, Reuters reports.
Supreme Court justices appear more open to Slack’s dispute of Section 11 claims
While the Supreme Court justices reportedly seemed open to Slack’s reasoning on why claims made under Section 11 of the Securities Act should not be allowed, they appeared less open to the company’s view of claims under Section 12.
Section 12 focuses on untrue statements made within a prospectus that goes along with the sale of a security, while Section 11 allows an individual to file a complaint if they find a falsity in the registration statement of a registered security they purchased, Reuters reports.
The justices reportedly expressed concern that there was little case law with Section 12, and that the U.S. Securities and Exchange Commission has not given its take on the issue.
“That strikes me as a big issue for these direct listings and something that I’m not sure we’re fully equipped at this moment to chime in on,” Justice Brett Kavanaugh said.
Slack’s prior bid to dismiss the class action lawsuit was reportedly rejected by the 9th Circuit in 2021, which ruled at the time that the company’s argument pertaining to a direct listing would create a loophole that could undercut the purpose of Section 11.
Section 11 of the Securities Act allows an individual to file a complaint in the event they found a falsity in the registration statement of a registered security they purchased, according to Reuters.
In another case, the Supreme Court revealed last month that it is planning to take on claims challenging the constitutionality of the way the Consumer Financial Protection Bureau is funded.
Have you purchased Slack securities offered by Salesforce? Let us know in the comments!
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