The Latest Developments in the Slack Class Action Lawsuit
The United States Supreme Court ruled unanimously in favor of Slack Technologies, offering the business communications software firm another chance to avoid a class action lawsuit connected with its 2019 direct listing. The Supreme Court reversed a lower court’s 9-0 ruling that permitted the litigation to proceed based on a wrong understanding of federal law for protection. The shareholder Fiyyaz Pirani filed a lawsuit alleging Sections 11 & 12 breaches as per the 1933 Securities Act. Pirani asserted that Slack’s registration and prospectus for direct listing held misleading information about service interruptions.
Slack claimed that the shareholders lawsuit must be dropped because Pirani could not establish that he purchased registered shares instead of unregistered shares, as mentioned in the false registration statement. The Supreme Court sided with Slack, ruling that a plaintiff must prove they purchased shares that can be traced back to the allegedly incorrect registration statement. The ruling emphasized that Section 11 applies to registered shares, whereas Section 12 applies to misleading information in a prospectus supporting the security sale.
In 2021, Salesforce, a prominent business software producer, purchased Slack for 27.7 billion dollars. Early investors’ registered and unregistered shares are simultaneously made open to the public in a direct listing. This is in contrast to an initial public offering (IPO), in which newly issued shares are made available to the public while existing shareholders are typically prohibited from trading their unlisted shares for a period of time. Direct listing of Slack involved 118 million authorized and 165 million exempt pre-existing shares. Pirani initiated the lawsuit after the stock price of Slack fell.
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