Axios Pro Rata

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February 04, 2023

This week we're showing you a perspective that rarely gets seen despite the very public nature of lawsuits in the U.S.

  • 👋 Reminder: Feel free to send me tips or comments by replying to this email or on Twitter @imkialikethecar.

Today’s Smart Brevity™ count is 972 words, a 3.5-minute read.

1 big thing: The investor facing off against Slack at SCOTUS

Photo Illustration of Fiyyaz Pirani next to the Supreme Court building with shapes overlayed

Photo Illustration: Natalie Peeples/Axios. Photo: courtesy of Fiyyaz Pirani

"I'm an American and I feel like if there's some level of civic duty here, why not?" Fiyyaz Pirani tells Axios.

  • He is the lead plaintiff in a lawsuit against Slack that will be heard in April by the Supreme Court, and he explained his motive for participating in the case.

Why it matters: The lawsuit, filed in relation to the workplace chat company's 2019 direct listing, could have implications for other public listings.

The big picture: Pirani, a 33-year-old software-entrepreneur-turned-stock-trader based in Houston, is now on his third lawsuit as a lead plaintiff. His first — against online education company 2U — was recently settled for $37 million (but how much he'll get personally is still to be determined).

  • He got involved in the 2U lawsuit after a Google alert flagged a press release from a law firm looking for affected 2U investors.
  • From there, he was referred by lawyers to the other two lawsuits he's leading — Slack, and most recently, Netflix.

Flashback: Pirani started trading stocks a few years ago after making several millions of dollars from a software company (though he declined to share more about the business). He now manages a portfolio of about $150 million, he says

  • Back in 2020, he also made nearly $100 million in trading profits, by betting early on the initial downturn from the pandemic.

What he's saying: "I think it's a cool experience, and I kinda enjoy it — it's like a David and Goliath thing," he says, explaining his decision to participate in more cases after his first go-around with 2U. "I'll get to go [to the Supreme Court] and go toe-to-toe with Salesforce (Slack's new owner)."

  • He also touts the free hours he gets to spend with expensive top lawyers because of the lawsuits — a priceless alternative to doing research himself. "It helps me become a better investor."

Between the lines: For Pirani, the whole legal process is free since his lawyers work on a contingency basis — a financial risk he says makes it fair that they get a huge cut of any winnings. Even his expenses and time spent will be covered if he wins or settles a case.

  • "The hardest part is the depositions," he says, because of the time commitment and prep required.
  • The publicity that comes from the cases, however, doesn't bother him. (In fact, Pirani himself reached out to Axios to offer an interview, and he's garnered some press in recent years for various reasons, such as his opulent penthouse).

The intrigue: While his fund lost about $2 million on 2U, Pirani says it ultimately made money on its Slack investment over the long run, despite the initial losses.

Yes, but: Asked if his serial participation in these suits is akin to patent trolling, Pirani immediately responds that he's merely "enforcing integrity in the stock market."

  • "A patent troll is looking to enrich themselves by stifling competition or stifling innovation," he adds.

One Elon Musk thing: Pirani described the embattled billionaire as "a brilliant innovator… but at the same time he does some boneheaded, stupid things." On Friday, Musk prevailed in a San Francisco federal trial over his infamous "funding secured" tweet about taking Tesla private.

  • Though Pirani says he's never owned Tesla stock, "I took [the tweet] 100% seriously…everybody in the investment community took it seriously."

The bottom line: Not everyone winces at the thought of protracted lawsuits against multibillion-dollar companies.

2. Meanwhile, in Delaware...

Photo collage of a gavel and a dollar bill.

Illustration: Shoshana Gordon/Axios

A Dec. 27 opinion by a Delaware Chancery Court judge may cause trouble for some companies that went public by merging a special purpose acquisition company (SPAC) with a dual-class share structure.

Driving the news: Over the last couple of weeks, a number of such companies filed requests in court, essentially asking for a defect in their corporate structure to be blessed so that it doesn't cause further issues.

Details: In an opinion for a lawsuit against online retailer Boxed — regarding legal fees — Vice Chancellor Morgan Zurn concluded that Class A and Class B are two separate common stock classes, not series.

  • Therefore, holders of the two categories of stock should get to vote separately. This, in turn, can invalidate previous and future votes if not done separately.

Between the lines: "It's long been observed that a lot of SPACs went public in a rushed and sloppy manner," Tulane University law professor Ann Lipton tells Axios via email. "And this is yet another mistake they made, resulting in a technical violation of Delaware law."

  • "Normally, companies should try to ratify defective corporate acts that would have required a shareholder vote initially with a new shareholder vote, but I think it's likely the court will agree that it is impractical now to seek a belated shareholder vote," Lipton adds.

Of note: It's unclear right now how many SPACs were formed with the same structure, but it's likely there are more than the few already filing ratification requests in court.

Yes, but: "I don't think this has implications beyond SPACs because it really was a technical mistake; it could have been fixed with slightly different wording in the original charter," adds Lipton.

  • In other words, she expects that the court will approve such requests, as long as the circumstances were similar and it's clear they were honest mistakes.

The bottom line: "It's indicative of the speed and lack of care that went into the SPAC frenzy," says Lipton.

📚 Due Diligence

  • Securites class action filings — 2022 year in review (Cornerstone Research)
  • Jury Rules for Elon Musk and Tesla in Investor Lawsuit Over Tweets (NYT)
  • Netflix targeted with shareholder lawsuit alleging securities fraud after subscriber miss (Variety)

🧩 Trivia

In lieu of trivia this week, place your bets on the outcome of whatever high-profile securities lawsuit you'd like:

  • Slack v. Pirani
  • Pirani v. Netflix et al.
  • USA v. Bankman-Fried
  • ... or anything else! 🎱

🧮 Final Numbers

Data: Cornerstone Research; Note: Core filings are all state 1933 Act class actions and all federal securities class actions, excluding those defined as M&A filings.  PAC does not include M&A. Chart: Tory Lysik/Axios Visuals

🙏 Thanks for reading! And to Javier E. David and Amy Stern for editing. See you on Monday for Pro Rata's weekday programming, and please ask your friends, colleagues and stock market investors to sign up.