Last month the U.S. Supreme Court agreed to take up an appeal by Slack to a lawsuit over its 2019 direct listing, which alleges the company made false statements in its prospectus.

Why it matters: Slack was bought out by Salesforce in a deal worth nearly $28 billion, completed in 2021, but the decision may have ripple effects on other public listings and how unregistered (and registered) shares get marketed and sold.

State of play: In a departure from precedent, the court will have to decide whether to allow purchasers of unregistered stock to also sue issuers under Sections 11 and 12(a)(2) of the Securities Act of 1933.

• Historically, U.S. courts have limited this broader liability, which includes innocent mistakes for (proven) purchasers of registered securities.
• Holders of unregistered stock have only been able to sue under other laws, most notably Section 10(b) of the Securities Exchange Act of 1934, which requires that they prove what amounts to fraud.
• As Reuters notes: "Slack’s arguments are premised on longstanding consensus in the federal courts, dating back to the 2nd Circuit’s 1967 ruling in Barnes v. Osofsky, that investors must be able to trace their shares back to a particular registration statement in order to bring Securities Act claims."
• The U.S. Securities and Exchange Commission also pointed to the district court's opinion the district court's opinion to permit such claims when it allowed hybrid direct listings in 2020.

Catch up quick: The plaintiff...

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