Trouble for Freshworks as US-based law firms file class action lawsuit

US-based law firms Scott+Scott and The Schall Law Firm on Wednesday filed a lawsuit against Nasdaq-listed SaaS major Freshworks alleging that the offering documents used to validate Freshworks’ Initial Public Offering (IPO) were false and misleading.

The law firms alleged that the company omitted to state at the time of the offering, the business had encountered obstacles.

According to the Complaint, Freshworks made false and misleading statements to the market and that was facing considerable business difficulties at the time of the IPO.

“The Company’s net dollar retention rate had plateaued, and both the revenue growth rate and billings were slowing down…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,” The Schall Law Firm said in a statement.

Scott+Scott said that the company’s net dollar retention rate was plateauing, and its revenue growth rate and billings were decelerating during IPO.

“As the truth about the Company’s business reached the market, the value of its shares declined dramatically, causing Freshworks investors to suffer significant damages. Indeed, by the commencement of the action, Freshworks’ shares traded as low as $10.51 per share, representing a decline of over 70% from the Offering Price,” the statement said.

The statements from both the law firms further stated that “Investors who purchased the Company's shares pursuant and/or traceable to the Company’s initial public offering conducted in September 2021, the IPO, are encouraged to contact the firm before January 3, 2023”.

Freshworks conducted its IPO, offering 28.5 million shares of its common stock to the investing public at a price of $36 per share in 2021.

Freshworks' spokesperson said," We don't comment on pending litigation and intend to defend this and any similar Cases vigorously," in an emailed response to Moneycontrol's queries.

The company, in fact, reported its third-quarter results on Wednesday where it saw revenue growing by 37% to $129 million. However, the company said that the overall macroeconomic pressure has led to slow expansion during the quarter.

The firm’s operational loss was recorded at $58.3 million during the quarter under review, which has come down from $67.4 million recorded in the previous quarter on the back of undertaking cost efficiency measures during the third quarter.