Freshworks could face class action lawsuits for misleading investors

Separate securities class action lawsuits have been brought against software provider Freshworks by the New York-based Scott+Scott Attorneys at Law LLP and the Los Angeles-based The Schall Law Firm.

A class action lawsuit is brought through one or more plaintiffs on behalf of many individuals or corporate organizations who have allegedly suffered due to the defendant’s actions.

In a statement dated November 1, Scott+Scott, a global shareholder and consumer rights litigation firm, said it had lodged a case in the US District of California, Northern District.

According to the law firm’s complaint, Freshworks provided offering documents that “were false and misleading and omitted to state that, at the time of the offering, the Company’s business had encountered obstacles” before its IPO in September 2021.

The law firm stated that, as a result, at Freshworks, the net dollar retention rate was plateauing and its revenue growth rate and billings were slowing down.

As the market learned the truth about the Company’s business, the value of its shares fell sharply, resulting in serious losses for Freshworks investors.

Similar accusations “for violations of the federal securities laws” have been made by The Schall Law Company, a national shareholder rights litigation firm.


Freshworks made false and misleading statements to the market 

The report mentioned that Freshworks has “made a false and misleading statement to the market.” Freshworks had significant business problems at the time of the IPO.

The company’s net dollar retention rate had reached a plateau, and billings and revenue growth were declining, according to a statement.

“Based on these facts, the Company’s public statements were false and materially misleading throughout the IPO period. When the market learned the truth about Freshworks, investors suffered damages,” it added.

Freshworks said on Thursday, “We don’t comment on pending litigation and intend to defend this and any similar case vigorously.”

Freshworks, a San Mateo-based company with roots in Chennai, went public last year by issuing 28.5 million shares for $36 each to raise over $1 billion at a $10 billion valuation. 

Shares Incur Loss

The stock opening price was roughly $46 per share on the day of the offering. Since then, it has dropped. The shares’ final price on Nasdaq on November 1 was $13.16, a decline of more than 71% since the firm went public on September 22, 2021. 


Scott Berg, Managing Director and Senior Research Analyst at investment bank Needham and Co, said, “Well, I have not seen the exact litigation, so it’s inappropriate for me to discuss any particular piece there. However, I will tell you that similar lawsuits that I’ve seen from a generalization perspective; are always difficult to prove because the plaintiffs usually have to prove that there were some nefarious activities with the company at hand.”

According to Scott, the company’s growth rate has stayed the same since it went public more than a year ago, but it has slowed in the recent few quarters mostly due to challenging macroeconomic conditions and currency swings.

 Reportedly, the combined value of settlement of the top 10 securities class action settlements was about $2,314.1 million in 2020.

Freshworks soared to the top of the list of equities purchased by Indian individual investors within a few days of its IPO.

According to Freshworks most recent third-quarter statistics, which were released on November 1, its net dollar retention rate – a measure of the revenue generated from repeat business and a predictor of future business growth- was 107%, which was lower than both quarterly and yearly levels.

From $172.4 million in 2019 to $249.7 million the year after, Freshworks’ total sales grew to $371 million in 2021.