Supreme Court Unanimously Narrows Scope Of Liability Under Section 11(a) Of Securities Act Of 1933

• Published date: 09 June 2023
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Securities
• Law Firm: Kramer Levin Naftalis & Frankel LLP
• Author: Mr Arthur Aufses III, Alan Friedman, Kerri Ann Law, Jonathan M. Wagner, Jennifer S. Windom, Daniel Ketani and Jonaki Singh

In Slack Technologies, LLC v. Pirani,¹ the Supreme Court' on June 1, 2023, unanimously held that even in a case involving direct listing of both registered and unregistered securities, to state a claim under Section 11(a) of the Securities Act of 1933, a plaintiff must allege that he or she purchased securities issued pursuant to and traceable to the allegedly misleading registration statement. Justice Neil Gorsuch wrote the opinion for a unanimous Court.

Litigation Background

The underlying action arose from Slack Technologies' 2019 direct listing of both unregistered shares previously held by Slack employees, investors or others and registered shares issued pursuant to a registration statement on the New York Stock Exchange. During the direct listing, both categories of shares became publicly available. Plaintiff purchased Slack shares following the direct listing. When Slack's share price later dropped, plaintiff filed a class-action lawsuit alleging that Slack had violated Sections 11 and 12 of the 1933 Act by filing a materially misleading registration statement. However, plaintiff did not allege that the shares he purchased were among the registered shares subject to the registration statement.

Slack moved to dismiss the complaint, arguing that only individuals who hold shares issued pursuant to a false or misleading registration statement can bring a claim under Sections 11 and 12. Slack argued that plaintiff had failed to allege that he purchased shares traceable to the allegedly misleading registration statement and, therefore, could not bring claims under these sections of the 1933 Act.

The District Court denied the motion to dismiss but certified its decision for appellate review. A divided panel of the Court of Appeals for the Ninth Circuit affirmed the denial of the motion to dismiss.² The dissent argued 'that Sections 11 and 12 require a plaintiff to plead and prove that he purchased securities registered under a materially misleading registration statement, which plaintiff had not done. The dissent further noted that many lower court cases have interpreted Section 11(a) as applying only to shares purchased pursuant to a registration statement. The Supreme Court granted certiorari to resolve this split of authority regarding the scope of Section 11(a).

The Supreme Court's Decision

The Court first considered the statute's text, in particular the language authorizing an individual to sue for a material misstatement or omission in a...