Slack Technologies v. Pirani
Case Overview
The Supreme Court addressed whether a plaintiff seeking to bring a securities fraud class action under Section 11 of the Securities Act of 1933 must demonstrate a traceable connection between the securities they purchased and a defective registration statement, and whether purchasers who bought on a secondary market after a direct listing (rather than a traditional IPO) can establish that traceability.
Decision
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Opinion of the Court
The Facts
Slack Technologies conducted a direct listing in 2019 in which existing shareholders sold shares to the public without a traditional IPO registration process for new shares. Fiyyaz Pirani purchased shares on the open market after the listing and sued under Sections 11 and 12(a)(2) of the Securities Act, alleging defects in Slack's registration statement. Slack argued that because Pirani could not demonstrate his shares were purchased pursuant to the specific defective registration statement as opposed to previously-issued unregistered shares that were also trading he lacked standing to bring a Section 11 claim.
The Application
In Slack's direct listing, both registered shares governed by the defective registration statement and unregistered previously-issued shares traded indistinguishably on the open market, creating a commingling that prevented any aftermarket purchaser from identifying the source of their holdings. Pirani's purchase of shares in the secondary market left him unable to trace his specific shares to the registered tranche covered by Section 11, since shares from both tranches were simultaneously trading at the same price and in the same venue. The Court found this factual inability to connect his purchase to the defective registration statement dispositive: the traceability requirement, inherent to Section 11's text, could not be satisfied where a plaintiff could not plausibly allege his shares "issued pursuant to" the challenged offering. The direct listing structure thus created an insuperable barrier to Section 11 liability for all aftermarket purchasers, regardless of whether the registration statement contained material misstatements.
The Conclusion
**Decided June 15, 2023. The Court held 9-0 that a plaintiff must plausibly allege their shares are traceable to a defective registration statement to bring a Section 11 claim.** In a direct listing where registered and unregistered shares trade together, a plaintiff who cannot identify which tranche their shares came from cannot satisfy this requirement. The ruling significantly limited securities fraud class actions arising from direct listings.
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Case Analysis
Overview
The Supreme Court addressed whether a plaintiff seeking to bring a securities fraud class action under Section 11 of the Securities Act of 1933 must demonstrate a traceable connection between the securities they purchased and a defective registration statement, and whether purchasers who bought on a secondary market after a direct listing, rather than a traditional IPO, can establish that traceability.
Facts
Slack Technologies conducted a direct listing in 2019 in which existing shareholders sold shares to the public without a traditional IPO registration process for new shares. Fiyyaz Pirani purchased shares on the open market after the listing and sued under Sections 11 and 12(a)(2) of the Securities Act, alleging defects in Slack's registration statement. Slack argued that because Pirani could not demonstrate his shares were purchased pursuant to the specific defective registration statement. As opposed to previously-issued unregistered shares that were also trading. He lacked standing to bring a Section 11 claim.
Issue
Whether a plaintiff who purchases shares in the aftermarket following a company's direct stock listing has standing to bring a Section 11 claim under the Securities Act of 1933 when the plaintiff cannot trace their specific shares to the allegedly defective registration statement filed for the direct listing.
Rule
Section 11 of the Securities Act, 15 U.S.C. § 77k, provides a cause of action for material misstatements in a registration statement to 'any person acquiring such security.' The statute requires that the security purchased be issued pursuant to the defective registration statement. Known as the 'traceability' requirement. Aftermarket purchasers must be able to link their shares to a specific defective offering.
Analysis
In Slack's direct listing, both registered shares governed by the defective registration statement and unregistered previously-issued shares traded indistinguishably on the open market, creating a commingling that prevented any aftermarket purchaser from identifying the source of their holdings. Pirani's purchase of shares in the secondary market left him unable to trace his specific shares to the registered tranche covered by Section 11, since shares from both tranches were simultaneously trading at the same price and in the same venue. The Court found this factual inability to connect his purchase to the defective registration statement dispositive: the traceability requirement, inherent to Section 11's text, could not be satisfied where a plaintiff could not plausibly allege his shares "issued pursuant to" the challenged offering. The direct listing structure thus created an insuperable barrier to Section 11 liability for all aftermarket purchasers, regardless of whether the registration statement contained material misstatements.
Conclusion
**Decided June 15, 2023. The Court held 9-0 that a plaintiff must plausibly allege their shares are traceable to a defective registration statement to bring a Section 11 claim.** In a direct listing where registered and unregistered shares trade together, a plaintiff who cannot identify which tranche their shares came from cannot satisfy this requirement. The ruling significantly limited securities fraud class actions arising from direct listings.
Notes
OT2022. Added via SCOTUS bulk import 2026-05-14
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