Selloff or Market Correction? Either Way, Here's What to Do NextSee Overvalued Stocks

US Supreme Court throws out ruling against Slack over direct listing

Published 06/01/2023, 10:23 AM
Updated 06/01/2023, 11:51 AM
© Reuters. FILE PHOTO: The Slack Technologies Inc. logo is seen on a display on the floor of the New York Stock Exchange (NYSE) during the company's IPO in New York, U.S. June 20, 2019.  REUTERS/Brendan McDermid/
MSFT
-
CRM
-
WORK
-

By Andrew Chung

(Reuters) -The U.S. Supreme Court on Thursday gave Salesforce (NYSE:CRM) Inc's Slack Technologies (NYSE:WORK) another chance to avoid a lawsuit over the workplace communications software company's 2019 direct listing.

In a 9-0 ruling, the justices threw out a lower court's decision that had let the proposed class action lawsuit filed by shareholder Fiyyaz Pirani proceed under what the Supreme Court concluded was an incorrect reading of a federal investor protection law. A direct listing is an alternative to a traditional initial public offering.

The justices ordered the San Francisco-based 9th U.S. Circuit Court of Appeals to reconsider the case.

Pirani's lawsuit alleged violations of Sections 11 and 12 of a federal law called the Securities Act of 1933. Pirani claimed that the company's registration statement and prospectus for its direct listing contained misstatements about service outages, the credits it promised to pay customers when service was disrupted, and the competition it faced from Teams, Microsoft (NASDAQ:MSFT)'s rival software.

Slack contended the lawsuit must be dismissed because Pirani cannot prove that he bought registered shares that were specified in the company's allegedly misleading registration statement rather than shares that were exempt from registration. The registration statement was filed with the U.S. Securities and Exchange Commission (SEC).

The justices agreed with Slack.

A plaintiff must "plead and prove that he purchased shares traceable to the allegedly defective registration statement," conservative Justice Neil Gorsuch wrote in the ruling.

Salesforce, a major business software maker, purchased Slack for $27.7 billion in 2021.

Slack's view was that Section 11 of the Securities Act, which lets plaintiffs sue for falsities in a registration statement if they bought "such security," refers to registered, not unregistered, shares. Section 12 focuses on untrue statements in a prospectus that accompanies the sale of a security.

In a direct listing, an approach approved by the SEC in 2018, registered shares and the unregistered shares of early investors in a company are made available to the public at the same time. That differs from an IPO, under which newly registered shares are offered to the public while existing shareholders are typically barred from selling their unregistered shares for months.

© Reuters. FILE PHOTO: The Slack Technologies Inc. logo is seen on a display on the floor of the New York Stock Exchange (NYSE) during the company's IPO in New York, U.S. June 20, 2019.  REUTERS/Brendan McDermid/

Slack's direct listing released 118 million shares that were registered under its registration statement and 165 million pre-existing shares that were exempt from registration. When Slack's stock price dropped, Pirani sued.

The San Francisco-based 9th U.S. Circuit Court of Appeals in 2021 rejected Slack's bid to dismiss the case because Pirani cannot prove his shares were registered, saying the argument in the context of a direct listing would "create a loophole large enough to undermine the purpose of Section 11."

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.