Slack Technologies, LLC v. Pirani
The Supreme Court unanimously ruled that investors can only sue under Section 11 of the Securities Act of 1933 if they can show the specific shares they bought are traceable to the company's allegedly misleading registration documents — not merely that they bought shares in the same offering.
The decision resolves a split among federal appeals courts and raises the bar for investors who bought shares in newer 'direct listing' offerings, where registered and unregistered shares trade together on the same exchange from day one.
How it got here: A federal trial court denied Slack's motion to dismiss but certified the ruling for immediate appeal; a divided Ninth Circuit panel affirmed; the Supreme Court agreed to hear the case because the Ninth Circuit's decision created a split among federal appeals courts.
The Case in Depth
What happened
Slack, a workplace messaging company, went public in 2019 through a "direct listing" rather than a traditional IPO. Unlike a traditional IPO, Slack's offering put both registered shares (118 million) and older, unregistered shares held by existing insiders (165 million) on the market at the same time, with no lockup period. Investor Fiyyaz Pirani bought shares the day Slack went public and later bought more. When the stock price dropped, he sued Slack, claiming its registration documents contained material misstatements, even though he could not show which type of shares he had actually purchased.
The question before the Court
Can an investor sue a company under a key 1933 securities law if he cannot show the shares he bought were part of the batch covered by the allegedly misleading registration documents?
The Court's answer
No — an investor can only bring a claim under Section 11 if he can show the shares he purchased are traceable to the specific registration statement alleged to contain the misstatements. The Court read the phrase "such security" in Section 11(a) as pointing to shares registered under the particular misleading document, not to any shares that might have some loose or indirect connection to it.
The Court identified several signals in the statute's own text: § 11 refers to "the registration statement" (with a definite article tying liability to one specific document), the word "such" is used throughout the provision to narrow focus to specific things rather than broad categories, and a damages-cap provision that references only the value of underwritten registered shares makes little sense if liability already reached unregistered ones. Because Pirani had not alleged his shares were traceable to Slack's registration statement, the Ninth Circuit's ruling allowing his lawsuit to proceed was vacated, and the case was sent back for the lower court to assess whether his pleadings can meet this standard.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Investors who buy shares in direct-listing stock offerings — where registered and older unregistered shares trade simultaneously — will have a harder time bringing federal securities fraud lawsuits under Section 11 if they cannot trace their specific shares to the company's registration documents. Companies going public through direct listings face reduced litigation exposure, but investors retain the right to sue under the 1934 Act's broader fraud provisions, which require proof of intent to deceive.
What changes now
The case returns to the Ninth Circuit to decide whether Pirani's pleadings can satisfy § 11 under the correct legal standard — that is, whether he can plausibly allege his shares were traceable to Slack's registration statement. The Court also vacated the Ninth Circuit's ruling on Pirani's § 12 claim for reconsideration in light of today's holding, but expressly reserved all questions about how § 12 should be interpreted and whether it carries the same tracing requirement.
What this does not decide
The Court did not decide how Section 12 of the 1933 Act should be interpreted or whether it requires the same share-tracing rule, leaving those questions for the Ninth Circuit on remand. The Court also did not address whether Slack was legally required to register all of the shares sold in its direct listing — an issue raised for the first time before the Court.
How the Court got there
The legal reasoning, step by step
- The central textual question was what 'such security' means in § 11(a) of the 1933 Act. Because the word 'such' normally points back to something already described, and no clear referent appeared in § 11(a) itself, the Court looked to the surrounding statutory context to supply the meaning.
- The Court found the statute's use of 'the registration statement' — a definite article pointing to one specific document, not 'a registration statement' or 'any registration statement' — a strong signal that § 11 ties liability to the particular document alleged to be misleading, and therefore to shares registered under that document.
- The statute repeatedly uses the word 'such' in the same provision to narrow focus: 'such part' of the registration statement, 'such acquisition,' 'such untruth or omission.' Each use refers to a specific thing rather than a broad category, suggesting 'such security' likewise points only to securities covered by the particular registration statement at issue.
- Section 6 of the 1933 Act says a registration statement is effective only for the securities specifically listed in it. Extending § 11 liability to unregistered shares — which are by definition not listed in the registration statement — would be hard to square with that provision.
- Section 11(e)'s cap on damages ties maximum recovery to the total price of shares underwritten and distributed to the public (i.e., registered shares). If § 11 liability already reached unregistered shares, one would expect the damages cap to reflect that — but it does not, further supporting the narrower reading.
- The Court rejected the investor's argument that a broader reading would better serve the 1933 Act's investor-protection purpose, noting that the 1934 Act already allows investors to sue for fraud in the sale of unregistered shares — just with a higher standard requiring proof of intent to deceive rather than strict liability. This two-track design suggests Congress deliberately balanced the regimes rather than intending the strict-liability track to reach unregistered shares.