Summary
The Ninth Circuit reversed the district court's denial of defendants' motion to dismiss a securities fraud action under sections 11 and 12(a)(2) of the Securities Act of 1933. Following a Supreme Court remand, the panel held that plaintiffs must trace their purchased shares to the specific registration statement or prospectus alleged to be misleading. Because the plaintiff conceded he could not establish such traceability for shares purchased in a direct listing, all claims failed.
Topics
Practice areas
Questions Presented
- Whether a plaintiff must show that the shares purchased are traceable to the registration statement alleged to be false or misleading to state a claim under §11 of the Securities Act.
- Whether §12(a)(2) imposes the same traceability requirement as §11.
- Whether Pirani’s prior concessions waive the traceability requirement and preclude amendment.
- Whether a derivative claim under §15 can proceed when the underlying §11 and §12(a)(2) claims fail.
Holdings
- A plaintiff must demonstrate that the securities purchased are traceable to the allegedly misleading registration statement; without such showing, the §11 claim fails.
- §12(a)(2) likewise requires the plaintiff to trace the purchased shares to the registration statement or prospectus; absent traceability, the claim fails.
- Pirani’s explicit concessions waive any allegation of traceability, precluding amendment; the waiver is not excused.
- Because the underlying securities‑law claims fail, the derivative claim under §15 also fails.
Key quotations
“Section 11 gives a cause of action only to a “person acquiring such security,” id. § 77k(a), while section 12(a)(2) similarly gives a cause of action only “to the person purchasing such security,” id. § 77l(a).” (at 6)
“The Supreme Court explained that because our section 11 analysis was “flawed,” the “best course is to vacate [the] judgment with respect to Mr. Pirani’s § 12 claim as well for reconsideration in light of [the Court’s] holding . . . about the meaning of § 11.”” (at 9)
Factual background
Slack Technologies went public via a direct listing on June 20, 2019, selling both registered and unregistered shares. Plaintiff Pirani purchased 30,000 shares on the first day and later alleged that Slack’s registration statement contained material misstatements. Pirani conceded he could not trace his shares to the registration statement.
Procedural history
Plaintiff filed a securities‑fraud class action alleging violations of §§11 and 12(a)(2) of the Securities Act after Slack Technologies’ 2019 direct listing. The district court denied Slack’s motion to dismiss, holding traceability was unnecessary. The Ninth Circuit affirmed. The Supreme Court vacated, holding traceability is required under §11 and, by analogy, §12(a)(2). The case returned to the Ninth Circuit on remand.
Remand instructions
Dismiss the complaint in full and with prejudice.