Slack Technologies, LLC v. Pirani

Background

A technology company that runs an instant messaging platform conducted a direct listing and filed a registration statement for certain shares it intended to offer publicly. A public buyer who purchased shares when the company went public later sued, saying the registration statement was materially misleading under the 1933 securities law. The buyer sued on behalf of a class after the stock price fell; the company argued the buyer had not alleged he purchased shares traceable to the registration statement because many unregistered shares were also sold in the direct listing.

Reasoning

The Court considered what the phrase “such security” in the statute means. Looking at the statute’s wording and context, the Court noted repeated narrowing language referring to the particular registration statement, other provisions limiting a registration’s effect to the securities specified, and a damages cap tying recovery to registered shares. The Court concluded the better reading requires a plaintiff to plead and prove that they purchased securities traceable to the specific registration statement alleged to be misleading. Policy arguments for a broader reading did not overcome the textual and contextual clues.

Real world impact

The ruling narrows which investors can pursue claims under §11: plaintiffs must show their shares are traceable to the challenged registration. The decision vacates the Ninth Circuit’s contrary ruling and sends the case back for the lower court to determine if the complaint meets the traceability requirement. This is not a final ruling on liability; courts must apply the traceability rule to the facts on remand.

Dissents or concurrances

The Ninth Circuit had a dissent that argued for the traceability requirement; the Supreme Court’s opinion was unanimous and adopts that approach.