Slack Technologies, LLC v. Pirani

Background

A technology company that runs an instant-messaging platform (Slack) conducted a direct listing and filed a registration statement for a set of registered shares while many unregistered shares were also sold. An investor, Fiyyaz Pirani, bought shares when Slack went public and later sued, saying the registration statement contained material misstatements. Slack said the complaint failed because Pirani did not allege his shares were traceable to the specific registration statement.

Reasoning

The Court examined the phrase “such security” in Section 11 of the 1933 securities law and read the statute’s words and context. It found several clues — use of “the registration statement,” repeated narrowing words like “such,” the rule that a registration is effective only for securities listed, and a damages cap tied to registered shares — that point to liability for securities registered under that particular statement. The Court therefore required traceability to the challenged registration.

Real world impact

This holding means investors who bought unregistered shares or shares not shown to be linked to the challenged registration will generally be unable to sue under Section 11. Companies using direct listings and sellers of unregistered shares face narrower exposure under Section 11. The Court vacated the Ninth Circuit decision and sent the case back for the appeals court to decide whether Pirani’s pleadings can meet the traceability requirement.

Dissents or concurrances

At the Ninth Circuit a judge dissented, arguing Section 11 requires traceability of the purchased shares to the registration statement, and the Supreme Court agreed with that view; the Supreme Court’s opinion was unanimous.