First Amended Complaint Filed In Consolidated Slack Securities Suit

On Monday in the California State Superior Court pf San Mateo County, the plaintiffs on behalf of themselves and others similarly situated filed a first amended consolidated class action complaint for securities violations against Slack, a company offering “a cloud-based collaboration and productivity platform.”

This securities class action is for individuals who purchased or acquired Slack Class A common stock in Slack’s June 2019 direct public offering, during which Slack offered more than 283 million shares. This action is for violations of Sections 11, 12, and 15 of the Securities Act of 1933 (the Securities Act). According to the plaintiffs, Slack’s offering documentation “contained untrue statements of material fact and omitted to state material facts required to be stated therein or necessary to make statements therein not misleading.”

On June 20, 2019, Slack’s opening share price was $38.50. However, on September 4, 2019, in a press release Slack announced its “second quarter fiscal 2020 (‘2Q2020’) results and admitted that ‘revenue was negatively impacted by $8.2 million of credits related to service level disruption in the quarter.’” Consequently, Slack share values decreased. “The Offering opening price of $38.50 fell 33% to $26. As of this filing, Slack shares are trading in the range of $21 per share.” Moreover, a few days after the offering, Slack had “three notable service disruptions, resulting in uptime performance of only 99.9%,” which “triggered the penalties in customers’ contracts for falling below the 99.99% service level requirement.” As a result, Slack gave millions of dollars in credit, “which deeply offset revenue for that quarter.”

The plaintiffs contended that shareholders did not know that “Slack had omitted in its Offering Documents material facts concerning the Company’s excessively punitive contracts with existing customers that were forcing the Company to suffer much higher revenue losses than anticipated.” Consequently, the plaintiffs claimed that they have suffered harm, loss, and damages as a result of these omissions and misleading statements. The plaintiffs proffered that the defendants are liable for their negligence.

The plaintiffs argued that Slack made misleading statements and failed to disclose information required by the government. Specifically, although Slack’s documents praised its “ ‘go-to-market’ enterprise business growth strategy and product scalability,” in actuality, Slack: “was experiencing significant and intensifying competition from Microsoft Teams due in part to Microsoft’s bundled business productivity suite”; was “attempting to attract and serve enterprise clients[, which] was creating vulnerabilities in its platform, including service disruptions, and Slack was having significant technical difficulties preventing adequate scaling of its platform”; “could not support its non-industry standard uptime guarantee of 99.99% [the industry standard is 99.9%] and had failed to satisfy this threshold in 7 months out of 12 in 2018”; was forced to give customers credit because of its “failure to satisfy its uptime guarantee”; Slack’s “credit award is subject to an ‘exceptionally generous credit payout multiplier in its contracts,’ requiring Slack, in the event of an interruption in service to compensate customers up to 100 times the value of the lost service,”; “customers unaffected by service disruptions are granted credits”; and as a result of Slack’s contract provisions, “even a de minimis service interruption materially impacts Slack’s financial performance.”

The plaintiffs have sought to declare this action a proper class action and to certify the class; an award for damages; an award for rescission, disgorgement, and other remedies; pre and post judgment interest; and other relief.  

Co-lead counsel for the plaintiffs are Robbins Geller Rudman & Dowd LLP; Cotchett, Pitre & McCarthy, LLP; Pomerantz LLP; and Scott+Scott Attorneys At Law LLP.

In April, Law Street Media covered an earlier securities suit against Slack for this same incident.