On December 13, 2022, the United States Supreme Court granted a petition for certiorari to review a split decision by the Ninth Circuit holding that plaintiff-investors had standing under the Securities Act of 1933 (the “Securities Act”) to sue a workplace communication software company (the “Company”) based on shares purchased through a direct listing. Slack Technologies, LLC, et al., v Fiyyaz Pirani, No. 22-200 (U.S. Dec. 13, 2022). The issue before the Supreme Court is whether Sections 11 and 12(a)(2) of the Securities Act require plaintiffs to plead and prove that they bought shares that were registered under the registration statement they claim was misleading.

As background, in 2019, the Company went public through a direct listing in which both registered and unregistered shares were sold. Although plaintiff could not show his shares were registered, the Ninth Circuit affirmed the district court’s holding (albeit with different reasoning) that plaintiff had standing under Sections 11 and 12(a)(2). We covered the Ninth Circuit’s decision (the “Decision”) in a previous post. As noted by the Ninth Circuit, in a direct listing, unlike a traditional initial public offering, a company “does not issue any new shares and instead files a registration statement ‘solely for the purpose of allowing existing shareholders to sell their shares’ on the exchange.” Shares are sold directly to the public and not through a bank, and there is no lock-up agreement restricting the sale...

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