Slack Technologies, LLC v. Pirani
The Supreme Court ruled unanimously that investors suing under a key securities fraud law must prove their shares actually came from the specific registration document they claim was misleading — a standard the investor here had not met.
The decision resolves a split among federal appeals courts and raises the bar for fraud suits against companies that go public through direct listings, a newer alternative to traditional IPOs in which registered and unregistered shares trade side by side from the start.
“Our only function lies in discerning and applying the law as we find it.”
The Court explaining why it would not read the statute more broadly to expand investor protection, even if that might seem to serve the law's general purpose.
How it got here: A federal district court denied Slack's motion to dismiss and certified the question for appeal; the Ninth Circuit affirmed, creating a split with other appeals courts; the Supreme Court agreed to hear the case.
The Case in Depth
What happened
Slack Technologies went public in 2019 through a "direct listing," a newer process in which both registered shares (covered by a disclosure document filed with regulators) and preexisting unregistered shares began trading on the New York Stock Exchange at the same time — with no investment bank intermediary and no lock-up period for insiders. A shareholder named Fiyyaz Pirani bought Slack stock on the first day and in the following months. When the stock price fell, he sued Slack under the Securities Act of 1933, claiming the registration document contained false and misleading information about the company.
The question before the Court
Can an investor sue under a federal securities fraud law over a misleading registration statement without showing the specific shares they bought actually came from that registration?
The Court's answer
No — an investor cannot bring this type of securities fraud claim without alleging that the specific shares they purchased were registered under the misleading document. The Court ruled unanimously that §11 of the Securities Act of 1933 requires a plaintiff to show their shares are "traceable" to the particular registration statement alleged to be false or misleading. Because Pirani bought shares in Slack's direct listing — where registered and unregistered shares traded simultaneously — he needed to plead that his shares came from the registered batch, not the unregistered one. He did not do that.
The Ninth Circuit's ruling allowing his lawsuit to proceed was therefore wrong and is wiped out. The case goes back to the lower courts to determine whether Pirani's pleadings can satisfy the correct legal standard. The Court also vacated the Ninth Circuit's separate ruling on Pirani's related §12 claim for reconsideration, while making clear it was not deciding what §12 requires.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Investors who buy shares in a direct-listing company — where registered and unregistered shares are sold simultaneously and are difficult to tell apart — will face a harder time bringing securities fraud suits. They must trace their specific shares back to the challenged registration document, a burden that may be difficult or impossible to meet in future direct-listing cases.
What changes now
The case returns to the Ninth Circuit, which must decide whether Pirani's lawsuit can satisfy the correct standard — that his shares are traceable to Slack's registration statement. The Ninth Circuit must also reconsider Pirani's separate claim under §12 of the 1933 Act in light of today's ruling. The Court cautioned that §11 and §12 contain distinct language and may not require identical analysis, leaving that question entirely open.
What this does not decide
The Court did not decide how §12 of the Securities Act applies to direct listings, and warned that §11 and §12 may have different requirements. It also left open whether Slack was legally required to register all shares sold in its direct listing — a question Pirani raised for the first time before the Supreme Court.
How the Court got there
The legal reasoning, step by step
- The Court focused on the text of §11(a) of the Securities Act of 1933, which gives investors the right to sue when a registration statement — the detailed disclosure document companies file before offering shares to the public — contains false or misleading information. The statute grants that right to 'any person acquiring such security.' The central question was what 'such security' means: only shares registered under the specific misleading statement, or also unregistered shares with some looser connection to it?
- The word 'such' normally refers back to something already described, but §11(a) doesn't make the referent obvious on its face. The Court therefore looked to context throughout the statute for clues — and found several pointing in the same direction.
- The statute consistently uses 'the registration statement' (with the definite article), targeting one specific document rather than registration statements in general. It also uses 'such' throughout to narrow focus — 'such part' of the statement, 'such acquisition,' 'such untruth or omission' — each time zooming in on something specifically tied to that one document. This pattern strongly suggested 'such security' means shares registered under that particular statement.
- Two other provisions reinforced that reading. Section 6 of the Act says a registration statement is legally effective only for 'the securities specified therein as proposed to be offered' — a rule that would make little sense if the statement also created liability for unregistered shares not listed in it. The damages cap in §11(e), which limits recovery to the value of underwritten registered shares, likewise fits naturally only if liability is confined to registered shares.
- Pirani argued that a broader reading would better serve the 1933 Act's goal of protecting investors, but the Court rejected that kind of purpose-based reasoning. It noted that Congress designed a deliberate balance: the 1933 Act imposes strict liability (no need to prove intent) but for a narrow category of claims tied to registration documents, while a broader 1934 Act covers fraud in any security but requires proof of intentional wrongdoing. Expanding §11 would upset that design.