In December, I blogged about the SCOTUS’s decision to grant Slack Technologies cert petition in a case addressing the application of Section 11 of the Securities Act to direct listings. Slack is appealing the 9th Circuit’s ruling that investors who acquired their shares through the company’s direct listing satisfied Section 11’s tracing requirement. Former SEC Chair Jay Clayton and former Commissioner Joseph Grundfest recently filed an amicus brief in support of Slack’s position. The former SEC bigwigs are being represented by Freshfields, and this excerpt from the firm’s recent blog summarizes their argument:
The Ninth Circuit’s decision in Slack invented an entirely new definition of Section 11 standing that conflicts with all precedent on point. First, The Ninth Circuit’s proposed definition extended liability far beyond the distribution of securities the direct listing. If literally applied, the Ninth Circuit’s definition of standing would dramatically expand Section 11 liability across a vast array of situations that are entirely unrelated to direct listings. It would achieve those results by substituting a judicially implied remedy for the judgment of Congress, regulators, and sophisticated market participants.
Slack also conflicts with the Securities Act’s plain text. Its holding cannot be reconciled with the statute’s damages formula or its fundamental structure, including its exemptive provisions, or with governing SEC regulations. The Ninth Circuit failed to consider sixty other instances in which the phrase “such security” appears in Securities Act, and proposes a definition that is inconsistent with the same term’s meaning in those sixty instances. Legislative history offers no support for the Ninth Circuit’s divergence from established precedent. The Ninth Circuit’s purposive rationale conflicts with norms of statutory construction urged by the Supreme Court.
The amici argue that if tracing creates a problem that needs to be addressed, Congress and the SEC have the ability to address that problem through legislative or administrative action, and that what they contend is a “radical judicial rewrite” of Section 11 is unwarranted.
– John Jenkins, TheCorporateCounsel.net, February 17, 2023