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Supreme Court sides with Slack, putting direct listings in jeopardy

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Re: Supreme Court sides with Slack, putting direct listings in jeopardy

#31

Post by Majromax »

zx8080 wrote: post #24
puzzledobserver wrote: post #23

Earlier quoted context omitted.

Thanks! From the added context: 7. Pirrani's suit relied on Section 11 of the Securities Act. This alleges that the company lied in its registration document. 8. In an IPO, all shares are covered by the registration document. In a direct listing, the current shareholders of the company just start trading their shares on the market one day. 9. Notably, a direct listing makes it unclear which shares are registered (cov…

What's the problem with Section 10?

> What's the problem with Section 10?

Per the Money Stuff article, Section 10 has a higher burden of proof. For a shareholder to win a lawsuit under section 10, they need to show that the disclosures were deliberately misleading, such that the board was trying to defraud investors.

Under a section 11 lawsuit, however, they only need to show that the disclosures were materially wrong: proof of motivation isn't required in the same way.

Re: Supreme Court sides with Slack, putting direct listings in jeopardy

#32

Post by detourdog »

RC_ITR wrote: post #29
puzzledobserver wrote: post #23

Earlier quoted context omitted.

Thanks! From the added context: 7. Pirrani's suit relied on Section 11 of the Securities Act. This alleges that the company lied in its registration document. 8. In an IPO, all shares are covered by the registration document. In a direct listing, the current shareholders of the company just start trading their shares on the market one day. 9. Notably, a direct listing makes it unclear which shares are registered (cov…

A judge will never force a broker to provide a unique share to a client (just a share exactly equal in value). So for convenience sake, they don’t assign a unique share to you , because why make it so that you have to keep a complex record of a bunch of fungible things? (i.e. Uh oh, that specific share is being lent to a short seller, but the true owner wants to sell it). In practice, he bought the right to be given…

I imagine this changed when paper certificates went away.

Re: Supreme Court sides with Slack, putting direct listings in jeopardy

#33

Post by throwaway09223 »

puzzledobserver wrote: post #23
nemothekid wrote: post #9

Earlier quoted context omitted.

I first came across this in Money Stuff[1], but the gist of it is, the unregistered shares came from employees selling their own shares. The reason it would not have happened with an IPO is because the employees would have been locked up. Everything else you said is correct. Now SCOTUS is saying that Pirrani cannot sue slack because he may not have bought shares directly from Slack. [1] https://www.bloomberg.com/opin…

Thanks! From the added context: 7. Pirrani's suit relied on Section 11 of the Securities Act. This alleges that the company lied in its registration document. 8. In an IPO, all shares are covered by the registration document. In a direct listing, the current shareholders of the company just start trading their shares on the market one day. 9. Notably, a direct listing makes it unclear which shares are registered (cov…

Regarding #1, #2 and #3:

Most people no longer own their shares directly. Most online self-clearing brokerages are "nominee" accounts where shares are held in the brokerages' name rather than the end customer's name. Owning specific shares in one's own name would be a "direct" account.

This is also how fractional shares are handled. Share ownership is a ledger at the brokerage, not an actual stock registered in your name.

Nominee brokerage accounts are cheap and fast.

Re: Supreme Court sides with Slack, putting direct listings in jeopardy

#34

Post by MacsHeadroom »

puzzledobserver wrote: post #23
nemothekid wrote: post #9

Earlier quoted context omitted.

I first came across this in Money Stuff[1], but the gist of it is, the unregistered shares came from employees selling their own shares. The reason it would not have happened with an IPO is because the employees would have been locked up. Everything else you said is correct. Now SCOTUS is saying that Pirrani cannot sue slack because he may not have bought shares directly from Slack. [1] https://www.bloomberg.com/opin…

Thanks! From the added context: 7. Pirrani's suit relied on Section 11 of the Securities Act. This alleges that the company lied in its registration document. 8. In an IPO, all shares are covered by the registration document. In a direct listing, the current shareholders of the company just start trading their shares on the market one day. 9. Notably, a direct listing makes it unclear which shares are registered (cov…

> I always thought this was simply shorthand for something like: "I own shares #1034852, #1092647, and #2986246".

Nope, (private) shares are almost always fungible and not numbered/serialized in any way.

In fact most shares are just a name followed by a number of shares in an excel spreadsheet or Google sheet at best, if not simply a declaration in founding documents.

> People sometimes own 0.25 shares of a company, but I thought that this was a convenience invented by stock brokers like Fidelity and Robinhood.

Again, no. Fractional shares are very normal. Any time shares are created (via dilution, additional investment, etc.) some existing grants and holdings are likely to become fractional. Usually fractional shares are calculated to the third or fourth decimal place.

Many shareholders in the forementioned spreadsheet will have their share amount tied to a % calculation which will inevitably resolve to a fractional share amount.

Say a share is worth $500, are you okay with $500 rounding errors? I wouldn't be. With 4 decimals the maximum rounding error becomes an immaterial 5 cents.

Re: Supreme Court sides with Slack, putting direct listings in jeopardy

#35

Post by jholman »

nemothekid wrote: post #9
puzzledobserver wrote: post #6

Is it just me, or are newspaper articles surprisingly difficult to read? From what I understand: 1. Instead of a traditional IPO, Slack went public through an alternative process called a direct listing. 2. As part of its direct listing, Slack sold some million "registered" and some million "unregistered" shares. 3. What are registered and unregistered shares? I could not find an explanation on Wikipedia. 4. Fiyyaz P…

I first came across this in Money Stuff[1], but the gist of it is, the unregistered shares came from employees selling their own shares. The reason it would not have happened with an IPO is because the employees would have been locked up. Everything else you said is correct. Now SCOTUS is saying that Pirrani cannot sue slack because he may not have bought shares directly from Slack. [1] https://www.bloomberg.com/opin…

Honestly it seems like the best practice is always just "read Money Stuff".

I'm not a serious follower of financial news, but various things do come across my radar, and since I've subbed to the email version of Money Stuff (about a year now), I always feel like I'm a week ahead of everyone else (again, at this not-serious-follower level, not a week ahead of the folks who are genuinely in the know). Like all the Twitter lawsuit stuff, all the FTX-fraud stuff, a bunch of LLMs-in-finance-and-law stuff lately... on all of those issues Levine kept me better informed, a week earlier, than every HN article put together. (Note that the HN comments are how I found out about Money Stuff in the first place)

The problem is that half the time it's just frickin' boring. I guess ya pays ya nickel and ya takes ya chances.

(Sometimes it is absolutely hilarious, which helps.)

Re: Supreme Court sides with Slack, putting direct listings in jeopardy

#36

Post by lolinder »

crazygringo wrote: post #18
btown wrote: post #4

Earlier quoted context omitted.

Here's the Money Stuff article: https://archive.is/qVei5#selection-4231.0-4231.5 > And so what happened in Slack is that, on the first day, roughly 118 million shares were available for sale under Slack’s registration statement, and roughly 165 million shares were available for sale without registration. And if you bought stock, there was no way to know which kind of stock you bought: You didn’t buy directly from the…

> I don't see how this is materially different from Axios' analysis? Because Axios is saying: > This raises major questions about the future viability of direct listings, which some companies believe are a more efficient alternative to IPOs. / In practice, SCOTUS told investors in direct listings that they should not rely upon information contained within stock registration statements. Given that giant warning sign,…

Money Stuff doesn't say it'll be the end of direct listings, but they do say that section 10 is much harder to sue under and therefore removing section 11 limits the company's liability a lot. It doesn't seem that far fetched to go from there to "so investors will avoid the risk".

Re: Supreme Court sides with Slack, putting direct listings in jeopardy

#37

Post by nickff »

Spivak wrote: post #26
yieldcrv wrote: post #10

> "Naturally, Congress remains free to revise the securities laws at any time, whether to address the rise of direct listings or any other development. Our only function lies in discerning and applying the law as we find it." I really don't see how anyone that actually reads Supreme Court decisions calls this court illegitimate. They are very consistent about not being a super legislature, no matter how disruptive th…

I do, and do. Not for this ruling, this ruling was just stupid. The odds that not one single share he purchased was registered is 1 / pow(10, 57,287). After that we're just haggling over how many there are. The ruling that I, and most people, find to be damning is overturning Row. I don't give two shits about what you think of the actual issue. It doesn't matter if the previous ruling was wrong, the point of the cour…

>"The ruling that I, and most people, find to be damning is overturning Row. I don't give two shits about what you think of the actual issue. It doesn't matter if the previous ruling was wrong, the point of the courts ironically isn't to actually get it right but make a decision. After that the law has been interpreted and it's up to the legislature to say, "no I actually meant this." There is some room for exceptions on this but a split decision, split on party lines, and extremely tenuous reasoning, should be all the signal you need that you don't have the "this is fine because it's obviously wrong" to warrant an exception like this. "

You present many controversial philosophical opinions as facts, which many people disagree with. 'Stare decisis' is the term used to describe the notion that existing judgements should be given deference, even when they're clearly wrong. The degree to which courts defer to SD varies a great deal, with judges holding diverse views on the subject, and many judges using it more as an argument of convenience than a philosophy which they follow.

I will assume that by "Row" you mean "Roe v. Wade", and it is a very good counter-example to the statements which follow it. RvW was decided based on constitutional grounds, which means that even if a legislature thought it was wrong, there would be no way to 'clarify' the matter. Another problem is that lots of cases have split decisions, some on party lines. In addition to those, there have been many times when the judges have (almost) all been from the same party (the 1930s come to mind); should those cases get deference?

Re: Supreme Court sides with Slack, putting direct listings in jeopardy

#38

Post by [deleted] »

MacsHeadroom wrote: post #34
puzzledobserver wrote: post #23

Earlier quoted context omitted.

Thanks! From the added context: 7. Pirrani's suit relied on Section 11 of the Securities Act. This alleges that the company lied in its registration document. 8. In an IPO, all shares are covered by the registration document. In a direct listing, the current shareholders of the company just start trading their shares on the market one day. 9. Notably, a direct listing makes it unclear which shares are registered (cov…

> I always thought this was simply shorthand for something like: "I own shares #1034852, #1092647, and #2986246". Nope, (private) shares are almost always fungible and not numbered/serialized in any way. In fact most shares are just a name followed by a number of shares in an excel spreadsheet or Google sheet at best, if not simply a declaration in founding documents. > People sometimes own 0.25 shares of a company,…

[deleted]

Re: Supreme Court sides with Slack, putting direct listings in jeopardy

#39

Post by crazygringo »

MacsHeadroom wrote: post #34
puzzledobserver wrote: post #23

Earlier quoted context omitted.

Thanks! From the added context: 7. Pirrani's suit relied on Section 11 of the Securities Act. This alleges that the company lied in its registration document. 8. In an IPO, all shares are covered by the registration document. In a direct listing, the current shareholders of the company just start trading their shares on the market one day. 9. Notably, a direct listing makes it unclear which shares are registered (cov…

> I always thought this was simply shorthand for something like: "I own shares #1034852, #1092647, and #2986246". Nope, (private) shares are almost always fungible and not numbered/serialized in any way. In fact most shares are just a name followed by a number of shares in an excel spreadsheet or Google sheet at best, if not simply a declaration in founding documents. > People sometimes own 0.25 shares of a company,…

Sure for private shares.

But what about public shares, which is what people are usually discussing?

Do publicly traded shares not have serial numbers or identification numbers or something to that effect?

Re: Supreme Court sides with Slack, putting direct listings in jeopardy

#40

Post by crazygringo »

lolinder wrote: post #36
crazygringo wrote: post #18

Earlier quoted context omitted.

> I don't see how this is materially different from Axios' analysis? Because Axios is saying: > This raises major questions about the future viability of direct listings, which some companies believe are a more efficient alternative to IPOs. / In practice, SCOTUS told investors in direct listings that they should not rely upon information contained within stock registration statements. Given that giant warning sign,…

Money Stuff doesn't say it'll be the end of direct listings, but they do say that section 10 is much harder to sue under and therefore removing section 11 limits the company's liability a lot. It doesn't seem that far fetched to go from there to "so investors will avoid the risk".

But it's still the same risk of normal everyday trading of shares.

So it does seem pretty far-fetched to me. If you followed that logic, the entire stock market would grind to a halt.

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