On June 1, 2023, the U.S. Supreme Court decided Slack Technologies v. Pirani, No. 22-200, holding that a cause of action arising from § 11(a) of the Securities Act of 1933 for a material misstatement or omission in a securities registration statement is only available to a party who purchased a security issued pursuant to that particular registration statement.

Slack, a technology company, first made its stock publicly available on the New York Stock Exchange in 2019 through a direct listing. It filed a registration statement describing registered shares that would become available at the time of the direct listing. At the time of the direct listing, however, 165 million separate unregistered shares, which were not the subject of the registration statement, also became publicly available. Pirani purchased many of the publicly available shares. When the shares lost value, he filed a lawsuit against Slack under § 11(a) of the Securities Act alleging that Slack’s registration statement was materially misleading. However, he did not allege that the shares he purchased were among those registered shares that were the subject of that registration statement. Slack moved to dismiss, but its motion was denied.

The Supreme Court held that § 11(a) only gives rise to a cause of action if the plaintiff purchased shares that were the subject of the allegedly misleading registration statement. It rejected Pirani’s argument that § 11(a) should also cover other securities that bear some other “minimal relationship” to the misleading statement.

The Court acknowledged that Congress “could have been clearer” in drafting § 11(a), but it held that the “context and circumstances” surrounding the provision supported its conclusion. First, it noted that the language of § 11(a) included some grammatical signifiers suggesting that the purchased securities contemplated in the statute were to be construed as narrow in scope and as related to the specific registration statement in question. Second, it observed that other provisions in the 1933 Act — including §§ 5, 6, and 11(e) — contained helpful “clues,” such as limiting damages to those related to the registered shares. Lastly, the Court noted that each Circuit Court of Appeals that had approached the question — with the lone exception of the present one — had reached the same result.

Justice Gorsuch authored the opinion for a unanimous Court.

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