![]() Many states, including Delaware, have already authorized such ledgers, and jurists and practitioners have all noted their potential benefits. Perhaps, companies can and should implement blockchain-based ledgers for their shareholders. The imposition of potential liability on Slack and other companies doing direct listings for shares they had long expected would be exempt does seem unfair. The ruling in Slack is extraordinarily harsh for the defendants and opens companies seeking to go public via direct listing to significant risk associated with their registration statements. ![]() Hiding behind choices Congress made nearly a century ago many not be prudent today. The complex, over-the-counter rapid trading we know today did not exist until recently. As discussed, the issuer would need only to mix the securities and make it nearly impossible to track shares so that plaintiffs would lack standing.Ĭourts have already acknowledged this. To find out more on this check out this Columbia Law Blue Sky Blog. In short, the court acknowledges that plaintiffs face a nearly impossible hurdle to even be heard. Rather than gut exceptions to the statute, a different decision would have effectively gutted Section 11 as it applied to direct listings. ![]() If we assume the Ninth Circuit erred, consider the implications for direct listings. Perhaps, for major shareholders, particularly longtime insiders and early investors who have long had access to significant information, this could present an opportunity to dump shares and avoid some degree of liability by potentially abusing the Rule 144 exemption. As a result, any reasonable purchaser could equate these 165 million exempt shares with the 118 million registered shares. Instead, they chose to sell during a period when, in a traditional IPO, they would have been locked in. Nor did they seek to hold their shares after Slack went public and then sell. However, these investors did not seek to sell their shares before Slack went public. Is it a matter of timing? For holders of restricted, unregistered securities, which are available for sale regardless, deciding when, to whom, and for how much to sell shares is strictly an investment decision. The Securities Industry and Financial Markets Association, Chamber of Commerce of the United States of America, and National Venture Capital Association argued that the Ninth Circuit’s ruling has effectively gutted the exemption under Rule 144. The majority correctly points out that if they ruled any other way, a company could very easily avoid any Section 11 liability via “a loophole large enough to undermine the purpose” of the law simply by “muddying the waters,” making available some number of exempt securities. They argue that, by mixing them with registered securities, there isn’t an avenue to ever achieve standing to assert Section 11 claims associated with the registered shares. ![]() Now, two federal courts have disagreed, finding that, regardless of the source of the shares, any alleged misinformation or misleading statements would affect all. The Ninth Circuit ruling focused primarily on the major policy concern of granting such a motion and applied the registration statement to all 283 million shares available for sale. Is there a difference between the 118 million shares from the registration statement and the 165 million sold under exemptions? The problem - A purchaser may receive the same securities for effectively the same price at effectively the same time. But Slack argued that the plaintiffs lacked standing because they could not trace the source of their shares between the two groups and so the company moved to dismiss on the case.
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