Nature of the Case
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Facts
Typically, when a company goes public it issues new shares pursuant to a registration statement. That registration statement is filed with the SEC and made available to the public. Investment banks underwrite the offering, usually by buying these new registered shares at a negotiated price and then selling them to investors at a higher price. Thus, underwriters often carry the risk of loss should they fail to sell the shares at a profit. A company’s early investors and employees may own preexisting shares. Often, too, these shares are not subject to registration requirements. To prevent the stock price from falling once public trading begins, underwriters may require insiders to consent to a “lockup agreement”-a commitment to hold their unregistered shares for a period of time before selling them on the new public market. A number of companies approached the New York Stock Exchange (NYSE) about the possibility of selling shares publicly on that exchange without an IPO. Ultimately, the NYSE proposed rules to facilitate and regulate these “direct listings,” which the SEC approved with modifications. D offers a platform for instant messaging. It conducted a direct listing on the NYSE in 2019. D filed a registration statement for a specified number of registered shares it intended to offer in its direct listing. As a direct listing, there was no underwriter and no lockup agreement. D’s direct listing offered for purchase 118 million registered shares and 165 million unregistered shares. P bought 30,000 hares on the day D went public. He bought 220,000 additional shares over the next few months. When the stock price later dropped, P filed a class-action lawsuit against D alleging that Slack had violated §§ 11 and 12 of the 1933 Act by filing a materially misleading registration statement. D moved to dismiss the complaint for failure to state a claim because P had not alleged that he purchased shares traceable to the allegedly misleading registration statement. P did not sue under the 1934 Act which allows investors to recover for fraud in the sale of unregistered shares upon proof of scienter. The district court denied the motion to dismiss but certified its ruling for interlocutory appeal. The Ninth Circuit accepted the appeal and a divided panel affirmed. The Supreme Court granted certiorari.
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