Slack Technologies, LLC v. Pirani

Slack Technologies conducted a direct listing on the New York Stock Exchange in 2019, offering both registered and unregistered shares simultaneously. Investor Fiyyaz Pirani purchased Slack stock and later sued under Section 11 of the Securities Act of 1933, alleging the registration statement contained material misstatements. The key issue was whether Pirani could trace his purchased shares specifically to the allegedly defective registration statement, given that both registered and unregistered shares were tradable on the same day. The Ninth Circuit had held that tracing was not required for direct listings, but the Supreme Court reversed. In a unanimous decision authored by Justice Gorsuch, the Court ruled that Section 11 requires plaintiffs to prove they purchased shares traceable to the specific registration statement alleged to be misleading, affirming the statutory tracing requirement even in the context of direct listings.

The Supreme Court unanimously reversed the Ninth Circuit, holding that Section 11 of the Securities Act of 1933 requires a plaintiff to trace their purchased shares to the specific registration statement alleged to contain false or misleading statements. Because Fiyyaz Pirani could not demonstrate that the shares he purchased were registered under the allegedly defective registration statement, rather than unregistered shares also sold in the direct listing, he lacked statutory standing to pursue his Section 11 claim.

Whether a plaintiff bringing a claim under Section 11 of the Securities Act of 1933 must plead and prove that the shares they purchased were issued under the registration statement alleged to be false or misleading, particularly in the context of a direct listing where both registered and unregistered shares become available for trading simultaneously on the first day of trading.

The ruling clarified the scope of Section 11 liability in the modern era of direct listings, providing significant protection to companies choosing this alternative to traditional initial public offerings. By requiring plaintiffs to trace their shares to the specific allegedly misleading registration statement, the decision imposes a meaningful pleading burden on shareholders and limits the potential exposure of companies to securities class actions arising from direct listings. The decision was widely viewed as a victory for the tech industry and capital markets innovation, reinforcing the viability of direct listings as a pathway to going public while underscoring the importance of the tracing requirement as a statutory safeguard against expansive Section 11 litigation.