High Court Curbs Shareholder Suits in Partial Salesforce Win (1)

The US Supreme Court limited the ability of shareholders to sue over misleading statements issued by companies when they go public through a direct listing, giving a partial victory to Salesforce Inc.’s Slack unit.

The justices on Thursday unanimously set aside a ruling that had let a shareholder suit go forward. Writing for the court, Justice Neil Gorsuch said federal securities law authorizes lawsuits over registration statements only by people who hold shares issued under those documents.

The case was the Supreme Court’s first look at direct listings since the Securities and Exchange Commission authorized the practice in 2018. In a direct listing, companies go public without selling shares through an initial public offering, instead letting early investors sell their registered and unregistered shares on a public exchange.

The justices were considering a suit by Fiyyaz Pirani, who alleges that Slack’s 2019 registration statement failed to disclose the extent to which the company would have to provide credits to customers over service disruptions. Salesforce acquired Slack in 2021.

Salesforce contends Pirani lacks legal standing to sue under the 1933 Securities Act because he can’t prove he bought registered shares. The Supreme Court ruling leaves open the possibility that Pirani can show that at least some of the 250,000 shares he says he bought were registered.

More than half the 283 million shares that became eligible for sale as part of Slack’s direct listing were exempt from registration under SEC rules.

The Securities Act authorizes suits over registration statements by “any person acquiring such security.” Gorsuch said that phrase “requires a plaintiff to plead and prove that he purchased shares traceable to the allegedly defective registration statement.”

The Supreme Court didn’t resolve a second aspect of the case, a separate provision in the securities laws covering prospectuses and oral communications. The justices told the 9th US Circuit Court of Appeals to revisit its decision letting that aspect of the case go forward as well.

The Supreme Court ruling could also have implications for IPOs, though those typically allow only registered shares to be sold during the initial period following an offering.

The Securities and Exchange Commission didn’t file a brief in the case. During arguments in April, some justices suggested they were wary of issuing a broad ruling without the SEC’s input.

The case is Slack Technologies v. Pirani, 22-200.

(Updates with details about case, decision starting in fourth paragraph.)

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Greg Stohr in Washington at gstohr@bloomberg.net

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Elizabeth Wasserman at ewasserman2@bloomberg.net

Greg Stohr

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