“Expanding Section 11 damages beyond IPO losses would unleash runaway liability, deterring public offerings and harming investors.”

—Cory Andrews, WLF General Counsel & Vice President of Litigation

Click here for WLF’s brief.

WASHINGTON, DC—Earlier today, Washington Legal Foundation (WLF), joined by the U.S. Chamber of Commerce and the Securities Industry and Financial Markets Association, urged the U.S. Court of Appeals for the Ninth Circuit to affirm the dismissal of a securities class action against Freshworks Inc. The amicus brief contends that Section 11 of the Securities Act of 1933 limits damages to losses below the IPO price caused by registration statement defects, precluding recovery for price drops above the offering price.

The appeal stems from a class-action lawsuit by Mohan R. Sundaram, who alleged that material omissions in Freshworks’ 2021 IPO registration statement caused the stock price to drop after a November 2021 earnings report. The U.S. District Court for the Northern District of California dismissed the Section 11 claim, finding that because Sundaram’s stock losses occurred after the market had already processed the information, they were not caused by any alleged omissions in the IPO registration.

In its amicus brief, WLF argues that Section 11(e)’s text, limiting damages to the difference between the IPO price and the sale price, and its negative-causation defense, bar recovery for losses above the IPO price, as confirmed by Congress’s 1934 amendments and settled caselaw. Allowing plaintiff’s broader reading would inflate settlement costs, discourage IPOs, and disrupt the Securities Act’s balanced framework, harming capital markets. WLF’s amicus brief was prepared with the pro bono assistance of Mark Fleming, Timothy Perla, and Mark Hanin of Wilmer Cutler Pickering Hale & Dorr LLP.