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Navigating the Complexities of the Securities Act of 1933: Understanding Section 11 Claims

July 11, 2024

The Securities Law of 1933 is a fundamental part of American securities legislation, and it promotes openness and equity in the securities industry. A crucial aspect of this law is Section 11, which gives investors the right to seek compensation if they buy securities based on a significantly deceptive registration document. The recent lawsuit involving Slack Technologies and Fiyyaz Pirani sheds light on the complexities of this provision and its use in current securities offerings.

The Background of the Case

Slack Technologies, a well-known technology firm that provides a messaging platform, went public through a direct listing on the New York Stock Exchange (NYSE) in 2019. Unlike traditional initial public offerings (IPOs), direct listings permit existing shareholders to sell their shares without intermediaries directly. As a result, Slack's direct listing involved the simultaneous sale of 118 million registered shares and 165 million unregistered shares.

Fiyyaz Pirani, an investor, purchased 30,000 Slack shares on the day of the listing and an additional 220,000 shares later. When Slack's stock price dropped, Pirani initiated a collective lawsuit, alleging that Slack's registration document contained significant inaccuracies, breaching Section 11 of the Securities Law of 1933.

The Legal Argument

Slack shifted to throw out the legal action, asserting that Pirani didn't describe a claim under Section 11 because he didn't declare that his stocks were linked to the deceptive enrollment statement. The local Court refused Slack's request, and the Ninth Circuit Court of Appeals supported the ruling. This brought about the crucial issue: What does a public purchaser need to allege to describe a claim under Section 11 of the Securities Act 1933?

Supreme Court's Verdict

The Supreme Court, in a consistent decision provided by Justice Gorsuch, deemed that Section 11 expects a complainant to allege and validate that they bought securities documented under a substantially deceptive registration statement. The Court underlined that the phrasing of Section 11(a) allows a lawsuit for a relevant misstatement or exclusion in "the enrollment statement" and that the term "such security" pertains to securities distributed under the supposedly deceptive registration statement.

The Court recognized various situational indicators to uphold its interpretation: Particular Article Employment: The legislation refers to "the registration statement," which displays a document that must be the basis of the supposed misstatements.

Limiting Emphasis on "Such": The repeated use of "such" in the legislation restrains the focus on securities recorded under the specific registration statement.

Section 6 and Compensations Upper Limits: Other clauses, such as Section 6 and the damage cap, further strengthen that Section 11 blame is restricted to securities documented under the specific registration statement purported to be deceptive.

Consequences for Direct Listings

While direct listings are a relatively innovative approach to going public, the Court's ruling explains that the current legal system under Section 11 applies continually despite the offering method. While declaring a claim, investors must confirm that the securities they have bought are linked to a deceptive registration statement.


Ending the Slack Technologies situation highlights the significance of accurate legal understanding in finance law. Part 11 of the Finances Law of thousand nine hundred and thirty-three enforces stringent responsibility on distributing firms for deceptive registration documents. However, complainants must track their bought finances and return them to the registration document. This Supreme Court ruling enhances the importance of transparent and precise declarations by firms throughout public proposals, guaranteeing that stakeholders are safeguarded based on the particular wordings and portrayals of listed finances.

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