Microsoft Word - KapoorFIXED.docx


  

 

NOTE 

DIRECT LISTINGS AND THE TRACING 
DOCTRINE: WHY CONGRESS OR THE SEC 

MUST INTERVENE 

Neal Kapoor* 

In September 2021, the U.S. Court of Appeals for the Ninth 
Circuit in Pirani v. Slack Technologies became the first circuit 
to have a say on whether an investor who purchases securities 
in a direct listing can establish standing to bring claims under 
Section 11 of the Securities Act of 1933. The Ninth Circuit’s 
controversial ruling challenges fifty years of established 
jurisprudence and has the potential to deter companies from 
performing direct listings. This Note argues for Congress or the 
SEC to intervene by requiring or encouraging companies to 
adopt blockchain technology once they go public via a direct 
listing. The goal of this approach is to ensure that companies 
continue to use direct listings, while also preserving adequate 
investor protections.  
 
I.  Introduction .............................................................. 1028 
II. Background on Direct Listings ................................ 1031 

A. IPOs and Direct Listings Generally .................. 1031 
B. Mechanics and Regulation of Direct Listings ... 1034 

1. Registration Statement Overview ............... 1034 
2. NYSE Rule Changes ..................................... 1035 
3. Securities Act Rule 144 ................................ 1036 

III. Analyzing Section 11 and the Slack Decision ......... 1037 
A. Section 11 of the Securities Act of 1933 ............ 1037 
B. Slack’s Direct Listing ......................................... 1040 
C. Pirani v. Slack .................................................... 1041 

 
* J.D. 2023, Columbia Law School; B.A. 2020, New York University. Thank 
you to Professor Zohar Goshen and Timothy Collins for their guidance on 
the topic, and to the board and staff of the Columbia Business Law Review. 



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1027 

1. Facts of Pirani v. Slack ................................. 1041 
2. District Court’s Opinion ............................... 1042 
3. Judge Restani’s Majority Opinion ................ 1045 
4. Judge Miller’s Dissenting Opinion ............... 1047 

IV. The Argument for Intervention ............................... 1048 
A. The Majority’s Policy-Motivated Decision Creates 

Significant Problems .......................................... 1048 
1. The Majority Misunderstood SEC Rule 144 

and Expanded Liability for Direct Listings 
Beyond IPOs .................................................. 1049 

2. The Majority’s Interpretation of “Such 
Security” is Inconsistent with Other Uses of 
the Phrase in Section 11 ............................... 1050 

3. The Majority’s Interpretation Conflicts with 
Other Circuits’ Interpretations of Section 
11 Liability and with the Ninth Circuit’s 
Own Precedent .............................................. 1052 

B. Supreme Court Reversal is Imminent, but Slack’s 
Reversal Could Threaten Investor Protections 1053 

C. Congress and the SEC Ought to Re-Examine 
Section 11 as it Applies to Direct Listings ........ 1055 
1. Courts are Unequipped to Resolve the 

Problems with Section 11 and the Tracing 
Requirements and Have Asked Congress to 
Intervene ....................................................... 1056 

2. Congress and the SEC Should Intervene to 
Change Section 11 as it Applies to Direct 
Listings .......................................................... 1058 
i. The SEC and Congress Have Authority to 

Change Section 11’s Bearing on Direct 
Listings .................................................... 1058 

ii. Blockchain has the Potential to Fix Tracing 
Issues in Direct Listings ......................... 1059 
a. Background on Blockchain ................ 1059 
b. Blockchain Technology in Stock Ledgers 

and Application to Tracing in Direct 
Listings ............................................... 1061 



  

1028 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

c. Congress or the SEC Ought to Either 
Require or Encourage Blockchain-Based 
Stock Ledgers ..................................... 1062 

V.  Conclusion ................................................................. 1064 
 

I. INTRODUCTION 

In any securities law regime, participants will inevitably 
search for loopholes within the law to avoid liability. After a 
controversial opinion by the U.S. Court of Appeals for the 
Ninth Circuit, direct listings might be a new way for firms to 
sidestep liability for material misrepresentations and 
omissions in offering materials.  

On April 3, 2018, music streaming company Spotify 
Technology S.A. (Spotify) went public through a direct listing 
of its shares on the New York Stock Exchange (NYSE).1 Less 
than a year later, Slack Technologies, LLC (Slack), a business 
software company, followed Spotify’s lead and performed its 
own direct listing.2 Unlike in a traditional Initial Public 
Offering (IPO), a company undergoing a direct listing does not 
issue new shares to raise capital. Instead, a direct listing’s 
main purpose is to allow shareholders to sell their privately-
owned shares on a public exchange.3  

Irrespective of the method, a company that goes public can 
incur liability for wrongdoing. After the stock market crash of 

 
1 Michelle Castillo, How Spotify’s Direct Listing is Different From an 

IPO, CNBC (Apr. 3, 2018, 12:55 P.M.), 
https://www.cnbc.com/2018/04/03/how-does-spotify-direct-listing-
work.html [https://perma.cc/9CGE-GD5K].  

2 Maureen Farrell, Slack Files to Go Public with Direct Listing, WALL 
ST. J. (Feb. 4, 2019, 3:46 P.M.), https://www.wsj.com/articles/slack-files-
confidentially-to-go-public-with-direct-listing-11549301336 
[https://perma.cc/RDD8-MGBL].  

3 Ran Ben-Tzur & James D. Evans, The Rise of Direct Listings: 
Understanding the Trend, Separating Fact from Fiction, FENWICK (Dec. 5, 
2019), https://www.fenwick.com/insights/publications/the-rise-of-direct-
listings-understanding-the-trend-separating-fact-from-fiction 
[https://perma.cc/UHP2-X9QF] [hereinafter The Rise of Direct Listings].  



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1029 

1929, Congress passed the Securities Act of 19334 and the 
Exchange Act of 1934.5 The Securities Act and the Exchange 
Act both “aim to protect investors through a mandatory 
disclosure regime.”6 The Securities Act sets out rules on the 
initial distribution of securities, and the Exchange Act 
governs the subsequent trading of those securities.7 
Companies that undergo an IPO or a direct listing are subject 
to several generic anti-fraud provisions, including Section 
10(b) of the Exchange Act8 and Section 17(a) of the Securities 
Act.9 However, a plaintiff’s most useful liability provision in 
the “going public” context is Section 11 of the Securities Act, 
since it imposes strict liability for material misstatements or 
omissions made in offering documents.10 To balance its 
usefulness, plaintiffs must show that the securities they 
purchased were acquired “pursuant to the registration 
statement” to have standing and access to the strict liability 
standard.11 This is known as the tracing requirement, and it 
ensures that only investors who bought shares pursuant to 
the challenged registration statement can sue.12  

As this Note will explore, investors can easily satisfy the 
tracing requirement in IPOs, while it is nearly impossible to 
do so in a direct listing. This issue arose in Pirani v. Slack 
Technologies, in which an investor sued Slack after it 
conducted its direct listing for alleged material 
misrepresentations in its offering materials.13 To the shock of 
 

4 15 U.S.C. § 77a.  
5 15 U.S.C. § 78a.  
6 Benjamin J. Nickerson, The Underlying Underwriter: An Analysis of 

the Spotify Direct Listing, 86 U. CHI. L. REV. 985, 1005 (2019).  
7 Id. at 988.  
8 15 U.S.C. § 77q.  
9 15 U.S.C. § 78j.  
10 15 U.S.C. § 77k(a).  
11 Barnes v. Osofsky, 373 F.2d 269, 271 (2nd Cir. 1967).  
12 Boris Feldman, Sarah Solum & Doru Gavril, Ninth Circuit on Strict 

Liability for Direct Listings, HARV. L. SCH. F. ON CORP. GOVERNANCE (Oct. 
14, 2021), https://corpgov.law.harvard.edu/2021/10/14/ninth-circuit-on-
strict-liability-for-direct-listings/ [https://perma.cc/9DEL-8Y2X]. 

13 Pirani v. Slack Technologies, Inc., 445 F. Supp.3d 367, 372–73 (N.D. 
Cal. 2020).  



  

1030 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

legal commentators,14 both the District Court and the Ninth 
Circuit held that the plaintiff had the standing to sue even 
though he could not trace his shares to Slack’s registration 
statement in the way in which the traditional tracing doctrine 
required.15 In their respective opinions, both courts prioritized 
investor protection concerns over precedent, which a 
commentator argued would expand liability for direct listings 
beyond traditional IPOs, create inconsistencies within Section 
11, and produce conflicts with other circuits’ interpretation of 
Section 11.16 This result has prompted predictions that the 
Supreme Court will reverse the decision.17 The Supreme 
Court has agreed to hear Slack’s appeal as of December 13, 
2022.18 The ramifications of reversing Slack are serious, as 
investors will no longer be able to successfully bring Section 
11 claims in direct listings. Thus, neither result—upholding 
nor reversing Slack—is desirable.  

This Note focuses on the adequacy of investor protections 
in the direct listing context. It argues that the judicial system 
is unequipped to fix the problem with the tracing requirement 
and urges Congress or the Securities and Exchange 
Commission (SEC) to re-examine Section 11 and to consider 
the use of blockchain technology to trace ownership of shares 
in direct listings.  

Part II of this Note will discuss the mechanics of a direct 
listing and detail the regulatory developments allowing direct 
listings on public exchanges. Part III will analyze Section 11 
of the Securities Act and the Slack decision. Part IV will make 
a case for Congress or the SEC to intervene by arguing that 
 

14 See Feldman et al., supra note 12.  
15 Pirani v. Slack Technologies, Inc., 445 F. Supp.3d 367, 376–83 (N.D. 

Cal. 2020); Pirani v. Slack Technologies, Inc., 13 F.4th 940, 946–49 (9th Cir. 
2021).  

16 See Feldman et al., supra note 12.  
17 Id. (“Slack represents a significant departure in the imposition of 

strict liability in securities regulation . . . We believe this decision warrants 
reversal by the Supreme Court”).  

18 Jody Godoy, U.S. Supreme Court to Hear Dispute Over Slack’s Direct 
Stock Listing, REUTERS (Dec. 13, 2022), https://www.reuters.com/legal/us-
supreme-court-hear-dispute-case-over-slacks-direct-stock-listing-2022-12-
13/ [https://perma.cc/2WUC-67JE]. 



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1031 

the two worlds where the Supreme Court upholds or reverses 
the Slack decision are undesirable for investors, companies, 
and the legal system.  

II. BACKGROUND ON DIRECT LISTINGS 

This section begins by comparing the purpose and features 
of an IPO and a direct listing. It concludes by detailing the 
mechanics of a direct listing and the regulatory developments 
that allowed companies to utilize a direct listing on a public 
exchange. 

A. IPOs and Direct Listings Generally 

A company that goes public via an IPO does so primarily 
because it wants to raise capital,19 which inevitably dilutes 
the positions of existing shareholders.20 The availability of a 
public marketplace easily outweighs the loss in share value 
since investors can quickly sell their shares due to shares 
being more liquid, meaning the shares can be converted into 
cash without giving up time or selling them at a lower price.21 
Companies conducting IPOs face large costs because they 
must hire investment banks to be underwriters.22 
Underwriters perform vital functions including 
“underwriting,”23 conducting “book building” by 

 
19 Brent J. Horton, Spotify’s Direct Listing: Is it a Recipe for Gatekeeper 

Failure?, 72 SMU L. REV. 178, 182–83 (2019). An average company can raise 
$100 million, but some companies raise more—like Snap, Inc., which raised 
$3.4 billion in its IPO. Id. at 183.   

20 Nickerson, supra note 6, at 990.  
21 See Adam Hayes, Understanding Liquidity and How to Measure It, 

INVESTOPEDIA, https://www.investopedia.com/terms/l/liquidity.asp 
[https://perma.cc/4UDG-6E66] (last updated Mar. 29, 2022). 

22 See Horton, supra note 19, at 185.  
23 See Nickerson, supra note 6, at 992–93. Underwriters facilitate the 

sale of securities to interested investors through two ways of underwriting. 
The first is known as “firm commitment underwriting,” in which the 
underwriter purchases securities from the issuer at a discounted price, and 
then later resells them to buyers at the public offering price. Id. at 922. The 
other way is called “best efforts” underwriting, in which the underwriter 
does not purchase securities from the issuer but instead contractually 



  

1032 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

communicating with prospective investors to gauge interest 
and set the offering price,24 actively marketing the issuer’s 
shares in meetings with large institutional investors,25 and 
assisting with the required filings.26 Given that an 
underwriter’s work is both time-consuming and risky, an 
issuer pays them a fee, which is referred to as the spread, or 
“the difference between the price that the dealer (underwriter) 
acquired the stock from the issuer [at] and the amount it 
receives when selling that same stock to the public.”27 The 
spread is normally around seven percent,28 and it is normally 
the single largest cost for companies going public through an 
IPO.29 

Another important feature of IPOs is the lock-up period. In 
IPOs, underwriters require pre-IPO investors to agree not to 
sell their shares for a specified period following the IPO.30 
Underwriters use lock-up periods to stabilize the stock’s price 
immediately after the IPO. Without a lock-up, there is a risk 
that a company’s shares would flood the market, lower the 
price, and harm the investors who bought shares during the 
IPO.31  

Unlike in the IPO process, a company that goes public 
through a direct listing does not raise capital. Direct listings 
are used primarily for efficiency in both “market creation” and 
“financing flexibility.”32 Direct listings allow a company to 
create a market for existing shareholders to immediately sell 

 
agrees to use its best efforts to sell as many securities as possible at the 
market price. Id. at 992–93. 

24 Horton, supra note 19, at 184.  
25 Id.  
26 Id.  
27 Robert B. Thompson, Market Makers and Vampire Squid: 

Regulating Securities Markets After the Financial Meltdown, 89 WASH. U. 
L. REV. 323, 335–36 (2011).   

28 Ben-Tzur & Evans, supra note 3.  
29 Horton, supra note 19, at 185 (showing that in average large IPOs, 

the underwriter fee was $37,000,000, or 83% of the total $44,350,000 cost).  
30 Ben-Tzur & Evans, supra note 3.  
31 Nickerson, supra note 6, at 993. 
32 See id. at 995.  



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1033 

their shares,33 allowing shareholders to avoid lock-up periods 
and the dilution of their shares.34 In addition, the costs of 
going public via a direct listing are considerably lower than 
via an IPO, as “there are no underwriters and consequently 
no underwriting fees in a direct listing.”35 For example, 
Spotify’s direct listing still utilized investment banks to assist 
in the process, but,  because a direct listing requires less work 
from investment banks, the fee was less than half what it 
would have been with an IPO.36 Lastly, direct listings allow a 
company to reap the benefits from having access to a public 
exchange. By being public, the company can raise capital on 
more favorable terms than an IPO because it does not need to 
underprice its stock,37 and it can buy back its stock “at the 
market price, without negotiating privately with its 
investors.”38  

Ultimately, the primary motivation for conducting a direct 
listing is increased liquidity of existing shares. The companies 
best suited for direct listings are tech “unicorns”39 that do not 
need to raise capital and want to provide a market for their 
investors.40 Slack conducted its direct listing for this exact 

 
33 Rupa Briggs, Direct Listings: The IPOs of the New Decade or a 

Passing Phase?, WHITE & CASE (Feb. 1, 2020), 
https://www.whitecase.com/sites/default/files/2020-03/direct-listings-ipos-
new-decade-or-passing-phase.pdf [perma.cc/99WH-RVK8].  

34 Id. 
35 Id.  
36 See Nickerson, supra note 6, at 998 (stating that Spotify paid $35 

million for the financial advisors’ fees, and that a J.P. Morgan Capital 
Markets report found that Spotify would have had to pay underwriters 
between $80 and $120 million if it went public through an IPO).  

37 Horton, supra note 19, at 189.  
38 Matt Levine, Going Public to Buy Back Stock, BLOOMBERG (Nov. 6, 

2018), https://www.bloomberg.com/opinion/articles/2018-11-06/going-
public-to-buy-back-stock [https://perma.cc/7SF7-D84W].  

39 A “unicorn” is “a term used in the venture capital industry to 
describe a privately held startup company with a value of over $1 billion.” 
James Chen, Unicorn, INVESTOPEDIA, 
https://www.investopedia.com/terms/u/unicorn.asp [perma.cc/MY9N-
59GW] (last updated Mar. 29, 2021).  

40 Horton, supra note 19, at 189. 



  

1034 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

purpose; in an interview with CNBC, Slack CEO Stewart 
Butterfield said: 

The big thing for us was—in a traditional IPO it’s the 
company that’s offering shares. You might raise, you 
know, a billion dollars or something like that. When 
you raise a billion dollars, you dilute existing 
shareholders by issuing new shares. So, we’re not 
doing that. We are just opening it up for trading.41 

B. Mechanics and Regulation of Direct Listings 

1. Registration Statement Overview 

When going public, a company is required to provide 
certain registration statements under the Securities Act and 
the Exchange Act. First, when a company performs an IPO, it 
is required to file a Form S-1 pursuant to the Securities Act.42  
Second, when a company lists shares on a public exchange 
pursuant to Section 12(b) of the Exchange Act, it must file a 
Form 10.43 Lastly, if a company has already filed a Form S-1, 
it can file a shortened Exchange Act registration statement 
known as a Form 8-A.44 

Here it is important to distinguish between a “pure” direct 
listing and the kinds of direct listings Spotify and Slack used. 
In a “pure” direct listing, a company is only required to file a 
Form 10 pursuant to the Exchange Act.45 This is because 
there is “no inherent statutory obligation to register these 
shares under the Securities Act of 1933 [through a Form S-1], 
 

41 CNBC, Slack CEO Explains Why the Company Chose Direct Listing 
Over IPO, CNBC (Jun. 19, 2019), 
https://www.cnbc.com/video/2019/06/20/slack-ceo-explains-why-the-
company-chose-direct-listing-over-ipo.html [https://perma.cc/7R63-BV63].  

42 Horton, supra note 19, at 190.  
43 Id. 
44 Id.  
45 John C. Coffee, Jr., The Spotify Listing: Can an “Underwriter-less” 

IPO Attract Other Unicorns?, THE CLS BLUE SKY BLOG (Jan. 16, 2018), 
https://clsbluesky.law.columbia.edu/2018/01/16/the-spotify-listing-can-an-
underwriter-less-ipo-attract-other-unicorns/ [https://perma.cc/Q7L3-
GUGN].  



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1035 

because the issuer is not making any sale.”46 Thus, a 
company’s existing shares could begin trading immediately 
after the Form 10 becomes effective.47 As the next section will 
cover, Spotify’s and Slack’s direct listings were not “pure” ones 
because they were required to do more than simply file a Form 
10 by the SEC and NYSE.48 

2. NYSE Rule Changes 

In June 2017, the NYSE proposed changes to its listing 
requirement rules to allow companies to conduct a direct 
listing on its exchange.49 Prior to the changes, the NYSE, 
pursuant to Section 102.01B, could list companies on a case-
by-case basis if the company had a $100 million valuation and 
months of documented trading history in private markets.50 
The NYSE proposal sought to include the below italicized 
language to the text of Footnote (E) to Section 102.01B: 

(E) Generally, the Exchange expects to list companies 
in connection with a firm commitment underwritten 
IPO . . . However, the Exchange recognizes that some 
companies that have not previously had their common 
equity securities registered under the Exchange Act, 
but which have sold common equity securities in a 
private placement, may wish to list their common 
equity securities on the Exchange at the time of 
effectiveness of a registration statement filed solely 
for the purpose of allowing existing shareholders to 
sell their shares. Similarly, some companies that have 
not previously had their common equity securities 
registered under the Exchange Act may wish to list 
immediately upon effectiveness of an Exchange Act 
registration statement without any concurrent IPO or 
Securities Act registration. Consequently, the 
Exchange will, on a case by case basis, exercise 

 
46 Id.  
47 Horton, supra note 19, at 191.  
48 Id.  
49 See Securities Act Release No. 34-80933, 82 Fed. Reg 28200. (June 

15, 2017).  
50 Nickerson, supra note 6, at 1001.  



  

1036 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

discretion to list companies whose stock is not 
previously registered under the Exchange Act, where 
such a company is listing without a related 
underwritten offering (i) upon effectiveness of a 
registration statement registering only the resale of 
shares sold by the company in earlier private 
placements or (ii) upon effectiveness of an Exchange 
Act registration statement without any concurrent IPO 
or Securities Act registration.51 

The italicized portions would have authorized a “pure” direct 
listing in which a company could begin trading its shares on 
the exchange after approval of a Form 10. Ultimately, the SEC 
rejected this change to provide investors more protections. 
Instead, the SEC required a company to file a Securities Act 
registration statement,52 which subjects the issuer to Section 
11 liability for material misstatements and omissions.53 In 
their direct listings, Spotify and Slack both filed Securities Act 
registrations,54 subjecting them to Section 11 liability and 
setting the stage for Slack.  

3. Securities Act Rule 144 

After Slack and Spotify filed the relevant registration 
statements, their shareholders could sell their securities 
immediately. This aligns with the general rule that, for a 

 
51 E-mail from Martha Redding, Assoc. Gen. Couns., NYSE, to Brent J. 

Fields, Sec’y, SEC, at Exhibit 5 (Aug. 1, 2017), 
https://www.sec.gov/comments/sr-nyse-2017-30/nyse201730-2161992-
157779.pdf [https://perma.cc/3ZWB-FKUJ] (emphasis added).  

52 Notice of Filing of Amendment No. 3 and Order Granting Accelerated 
Approval of Proposed Rule Change, Exchange Act Release No. 34-82627, 83 
Fed. Reg. 5650 (Feb. 2, 2018) (“Amendment No. 3 revised the proposal to 
eliminate the proposed changes to Footnote (E) that would have allowed a 
company to list immediately upon effectiveness of an Exchange registration 
statement only, without any concurrent IPO or Securities Act of 1933 
(‘Securities Act’) registration.”).  

53 Horton, supra note 19, at 193.  
54 Spotify Technology S.A., Amendment No. 3 to Form F-1 Registration 

Statement (Form F-1) (Mar. 23, 2018); Slack Technologies, Inc., Form S-1 
Registration Statement (Form S-1) (Apr. 26, 2019).  



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1037 

shareholder to sell securities on a public market, those 
securities must be registered with the SEC.55  

However, Securities Act Rule 144 provides exemptions to 
this general rule. It allows the sale of unregistered, restricted, 
and control securities if five conditions are met.56 Rule 144 is 
usually used by private shareholders who receive securities as 
part of an employee benefits package as compensation in 
exchange for start-up capital or as part of an M&A 
transaction.57 

Rule 144 plays a critical role in direct listings and in Slack. 
In Slack’s direct listing, only about 42% of its outstanding 
shares were registered pursuant to a registration statement, 
and the remaining 58% were exempt from registration under 
Rule 144.58 Thus, after its direct listing, the market for Slack’s 
shares included a mix of both registered and unregistered 
shares.59 As Part III will explain, Rule 144 has a direct impact 
on an investor’s ability to prove the tracing requirement under 
Section 11.  

III. ANALYZING SECTION 11 AND THE SLACK 
DECISION 

A. Section 11 of the Securities Act of 1933  

Section 11 establishes a private cause of action for persons 
who acquired securities through a registration statement that 
contains false or misleading information. Section 11 provides, 
in relevant part: 

 
55 See Rule 144: Everything You Need to Know, UPCOUNSEL, 

https://www.upcounsel.com/rule-144 [https://perma.cc/G844-FAZL] (last 
updated Oct. 5, 2020).  

56 See id.  
57 Id.  
58 Francis McConville, Alec Coquin & Charles Wood, Slack’s Direct 

Listing Tests Limits of Securities Act, LAW360 (Dec. 10, 2019), 
https://www.labaton.com/hubfs/Law360%20-
%20Slacks%20Direct%20Listing%20Tests%20Limits%20Of%20Securities
%20Act.pdf [https://perma.cc/NB6S-EPCE].  

59 Id.  



  

1038 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

In case any part of the registration statement, when 
such part became effective, contained an untrue 
statement of a material fact or omitted to state a 
material fact required to be stated therein or 
necessary to make the statements therein not 
misleading, any person acquiring such security . . . 
may, either at law or in equity, in any court of 
competent jurisdiction, sue— (1) every person who 
signed the registration statement.60 

To prevail on a Section 11 claim, prospective plaintiffs 
must show that they purchased the registered securities, that 
the defendant or defendants signed the registration 
statement, and that a “part of the registration statement for 
the offering contained an untrue statement of a material fact 
or omitted a material fact necessary to make the statements 
not misleading.”61  

Section 11 provides plaintiffs with a strict liability 
standard, meaning there is no requirement to prove scienter, 
reliance, or causation.62 In the House report on the Securities 
Act, Congress “explicitly stated its intent to impose § 11 
liability on those who are ‘responsible for’ the disclosure in 
registration statements”63 because it wanted to ensure those 
who are responsible for the investment of other’s people 
money are held to high standards of trusteeship. 64 Congress 
chose a strict liability standard because it believed it was 

 
60 15 U.S.C. § 77k.  
61 Jay A. Dubow, Robert L. Hickok & Biance DeBella, Divided Ninth 

Circ. Opens Floodgates for Direct Listing Investors to Assert Section 11 
Claim, TROUTMAN PEPPER (Dec. 1, 2021), 
https://www.troutman.com/insights/divided-ninth-circ-opens-floodgates-
for-direct-listing-investors-to-assert-section-11-claim.html 
[perma.cc/ARP7-AQY3].  

62 Id.  
63 Nickerson, supra note 6, at 1021.  
64 SAM RAYBURN, FEDERAL SUPERVISION OF TRAFFIC IN INVESTMENT, 

H.R. REP. NO. 73-85, at 5 (1933) (explaining that the “essential 
characteristic [underlying § 11 liability] consists of a requirement that all 
those responsible for statements upon the face of which the public is 
solicited to invest its money shall be held to standards like those imposed 
by law upon a fiduciary”).  



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1039 

consistent with the Securities Act’s goal of creating a 
mandatory disclosure regime. However, to balance Section 
11’s imposition of strict liability, Congress and the courts 
developed the tracing requirement, which forces plaintiffs to 
“establish standing by showing that their shares were 
traceable to the challenged registration statement.”65  

The “tracing” requirement was created in Barnes v. 
Osofsky, and it relies on the interpretation of the phrase 
“acquiring such security” within Section 11.66 In Barnes, the 
defendant produced a public offering of newly issued shares, 
and the plaintiffs sought the approval of a settlement for all 
shareholders, independent of whether each investor’s shares 
were newly issued or previously acquired.67 The district court 
reduced the settlement class to only those investors who 
acquired the newly issued shares because “Section 11 of the 
Securities Act of 1933 and its interpretation in this Circuit, 
preclude participation, by shareholders whose shares were 
not part of the public issue complained of, in a settlement of 
action maintained under that section.”68  

On appeal, Judge Friendly, writing for the U.S. Court of 
Appeals for the Second Circuit, identified two readings—a 
narrow and a broad view—of the phrase “acquiring such 
security.”69 The narrow reading defined the phrase as 
“acquiring a security issued pursuant to the registration 
statement,” while the broad reading defined it as “acquiring a 
security of the same nature as that issued pursuant to the 
registration statement.”70 Ultimately, Judge Friendly chose to 
adopt the narrow reading based on the overall statutory 
scheme, language from the legislative history, dicta from 
within the Second Circuit, and an amicus brief from the 
 

65 Feldman et al., supra note 12.  
66 Paul C. Curnin & Christine M. Ford, The Critical Issue of Standing 

Under Section 11 of the Securities Act of 1933, 6 FORDHAM J. CORP. & FIN. L. 
155, 159 (2001).  

67 Barnes v. Osofsky, 254 F.Supp. 721, 722 (S.D.N.Y. 1966).   
68 Id. at 726 (citing Fischman v. Raytheon Mfg. Co., 188 F.2d 783 (2d 

Cir. 1951)).  
69 Barnes v. Osofsky, 373 F.2d 269, 271 (2nd Cir. 1967).   
70 Id.  



  

1040 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

SEC.71 However, Judge Friendly did note that the broad 
reading “would not be such a violent departure” from Section 
11, and a court could adopt it “if there were good reason for 
doing so.”72  

Following Barnes, the Ninth Circuit also adopted the 
narrow reading of “acquiring such security” in Hertzberg v. 
Dignity Partners, Inc., stating that a plaintiff “must have 
purchased a security issued under that, rather than some 
other, registration statement” to have standing under Section 
11.73 Thus, the narrow reading became the standard approach 
to Section 11 in the Ninth Circuit.74 To assert a Section 11 
claim, plaintiffs are required to show that they “purchased 
shares in the offering made under the misleading registration 
statement,” or if they purchased shares in the aftermarket, 
they must “trace their shares back to the relevant offering.”75  

Overall, Section 11 is an extremely useful provision for 
plaintiffs because it gives them access to strict liability, but its 
applicability is severely limited by the standing requirements. 
As Part III.C will show, this dichotomy is the central issue in 
Slack.  

B. Slack’s Direct Listing 

On June 20, 2019, Slack went public through a direct 
listing, and its shares began trading on the NYSE under the 
ticker symbol “WORK.”76 In preparing for the direct listing, 
Slack filed both a Form S-1 and a Form 424B4 prospectus.77 
 

71 Id. at 272–73.  
72 Id. at 271.  
73 Hertzberg v. Dignity Partners, Inc., 191 F.3d 1076, 1080 (9th Cir. 

1999) (citing Barnes, 373 F.2d at 269).  
74 See In re Century Aluminum Co. Sec. Litig., 729 F.3d 1104, 1106 (9th 

Cir. 2013).  
75 Id.  
76 Pirani v. Slack Technologies, Inc., 445 F. Supp.3d 367, 373 (N.D. Cal. 

2020).  
77 Id. A prospectus is a “formal written document that accompanies a 

new offering of a corporate security, meant to provide information to 
potential buyers of that security [and] contains detailed information on the 
business’ history, financial state, [and] current business plans.” Prospectus, 



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1041 

Together the Form S-1 and Form 424B4 constituted Slack’s 
“offering materials” for the SEC.  

As Part II explained, by choosing to use a direct listing, 
Slack did not issue new shares. Instead, Slack’s direct listing 
allowed insiders and early investors to simply sell their 
existing shares on the NYSE. Since no new shares were 
issued, individuals holding existing shares were not subject to 
a lock-up period and could sell their shares immediately. 
However, due to SEC Rule 144, not all of Slack’s existing 
shares were required to be registered with the SEC. In Slack’s 
direct listing, the registration statement permitted the sale of 
118,429,640 shares, while Rule 144 allowed 164,932,646 
shares to be sold immediately and to be exempt from 
registration.78 Thus, both registered and unregistered shares 
could be sold immediately on the NYSE. As Section III.C will 
show, the presence of both registered and unregistered shares 
severely complicates an investor’s ability to prove the tracing 
requirement. 

C. Pirani v. Slack 

1. Facts of Pirani v. Slack  

On June 20, 2019, Fiyyaz Pirani “(the plaintiff)” purchased 
30,000 shares of Slack’s Class A common stock at $40/share, 
and from June 21 to September 9, he bought approximately 
another 220,000 shares.79 Pirani sued Slack in a securities 
class action and alleged that he and other investors in the 
same class suffered losses to the value of their shares due to 
misstatements or omissions of material facts within Slack’s 

 
LEGAL INFO. INST., https://www.law.cornell.edu/wex/prospectus 
[https://perma.cc/K2H2-JC4D] (last visited Feb. 27, 2022).   

78 Nicolas Grabar, David Lopez, Jared Gerber & Les Silverman, Cleary 
Gottlieb Discusses How Court Allowed Securities Liability for Slack’s Direct 
Listing, THE CLS BLUE SKY BLOG (May 4, 2020), 
https://clsbluesky.law.columbia.edu/2020/05/04/cleary-gottlieb-discusses-
how-court-allowed-securities-liability-for-slacks-direct-listing/ 
[https://perma.cc/PZ8T-M9SF].  

79 Pirani, 445 F.Supp.3d at 372.  



  

1042 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

offering materials.80 Specifically, Pirani identified statements 
“regarding service outages and Slack’s Service Level 
Agreements (‘SLAs’) in the case of such outages; competition 
from Microsoft Teams; scalability and purported key benefits; 
and growth and growth strategy.”81 Throughout 2019, Slack 
did experience service outages and other issues, and after 
their September 4, 2019 earnings announcement, Slack’s 
share price dropped to below $25.82 

In his complaint, Pirani asserted claims under Section 11, 
Section 12(a)(2), and Section 15.83 Defendants moved to 
dismiss all of them.84 This Note focuses solely on the Section 
11 claim because it is the primary issue raised on appeal, and 
Pirani’s Section 12 claim relied on him satisfying the tracing 
requirement, which relates back to the Section 11 issue. 

2. District Court’s Opinion 

Ultimately, the district court denied the defendants’ 
motion to dismiss. The court held that Pirani could trace his 
shares to Slack’s registration statement and thus had 
standing under Section 11. 

In evaluating the Section 11 claim, the district court stated 
that plaintiffs must either have “‘purchased shares in the 
offering made under the misleading registration statement,’ 
or purchased shares in the aftermarket ‘provided they can 
trace their shares back to the relevant offering’” to have 
standing.85 The court found that, while there exists prior case 
law on the tracing requirement, the precise issue here was one 
of first impression, since the tracing requirement had never 
been applied in a direct listing where there was a 
simultaneous sale of both registered and unregistered shares. 
Prior case law had instead dealt with successive registrations 

 
80 Id. at 372–73.  
81 Id. at 373.  
82 Id. at 374–75.  
83 Id. at 375.  
84 Id. at 375.  
85 Id. at 378 (citing In re Century Aluminum Co. Sec. Litig., 729 F.3d 

1104, 1106 (9th Cir. 2013)). 



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1043 

where a company issued a secondary offering to the public and 
had multiple registration statements.86 Here, Pirani 
challenged Slack’s sole registration statement that authorized 
its direct listing.  

The district court’s opinion depended solely on whether the 
court used the narrow or the broad reading of “such security,” 
since the choice directly impacted whether Pirani could show 
standing.  

Under the narrow reading,87 it would have been impossible 
for Pirani to satisfy the tracing requirement. The narrow 
reading requires a plaintiff to show that his shares were 
acquired pursuant to the registration statement, but in 
Slack’s case, both registered shares under the direct listing 
and unregistered shares authorized for sale under SEC Rule 
144 were sold to the public simultaneously.88 Thus, Pirani had 
no way of knowing whether his purchased shares were 
registered or unregistered ones and therefore could not satisfy 
the stringent standard imposed by the narrow reading. The 
key fact that made tracing impossible under the narrow 
reading in Slack’s direct listing was the simultaneous offering 
of unregistered and registered shares.89   

Alternately, under the broad reading, Pirani could have 
proved standing if his shares had been of the same nature as 
those issued under the registration statement. Thus, despite 
not knowing whether his shares were registered or 
unregistered ones, Pirani could have satisfied this 
requirement because all of Slack’s shares were identical 
securities.  

 
86 See, e.g., In re Century Aluminum, 729 F.3d at 1107 (9th Cir. 2013); 

Lee v. Ernst & Young, LLP, 294 F.3d 969, 972 (8th Cir. 2002); Krim v. 
pcOrder.com, Inc., 402 F.3d 489, 491 (5th Cir. 2005).  

87 See supra Section III.A; Barnes v. Osofsky, 373 F.2d 269, 271 (2nd 
Cir. 1967). 

88 Pirani v. Slack Technologies, Inc., 445 F. Supp.3d 367, 379 (N.D. Cal. 
2020). The court viewed Slack’s common stock as becoming available from 
two simultaneous entry points. Id. One was the registration statement and 
the other was Rule 144. Id.  

89 Id. 



  

1044 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

Ultimately, the district court adopted the broad meaning 
because it believed the narrow reading would interfere with 
the goals of the Securities Act.90 The Securities Act provides 
for remedial penalties when registration statement 
requirements have been violated. However, due to Rule 144, 
certain shares are exempted from registration. Normally, 
transactions subject to registration requirements and those 
that are exempt from registration happen at different time 
periods, but in Slack’s direct listing, both transactions—the 
sale of registered and unregistered or exempted shares—
occurred simultaneously.91 The district court thought the 
narrow reading of “‘such security’ in the context of Slack’s 
direct listing would cause the exemption provision of Section 
4 to completely obviate the remedial penalties of Section[] 11,” 
which would lead to “absurd or futile results . . . plainly at 
variance with the policy of the legislation as a whole.”92 Here, 
the court identifies that the narrow meaning would eliminate 
civil liability under the Securities Act, which is contrary to the 
statute’s goal of full and fair disclosure in securities issuances. 
Thus, the district court holds that this unique circumstance—
a direct listing where registered shares become available for 
sale simultaneously with shares exempted from 
registration—warrants the broader reading of “such 
security.”93  

Slack illustrates the district court’s willingness to relax the 
pleading requirements to prevent insulating direct listings 
from liability under the Securities Act. Based on precedent 
and the narrow reading of “such security,” the court should 
have affirmed the defendants’ motion to dismiss with respect 
to the Section 11 claims, but the district court’s analysis did 
not end here. Instead, the court looked at policy concerns. It 
agreed with the plaintiff that this view of the tracing 
requirement would “eviscerate the rights afforded by Section 
11 and allow companies to eliminate Section 11 liability by 
 

90 Id. at 380.  
91 See supra Section II.B.3.  
92 Pirani, 445 F. Supp.3d at 380 (citing EEOC v. Commercial Office 

Prod. Co., 486 U.S. 107, 120 (1988)).  
93 Id. at 381. 



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1045 

releasing non-registered shares into the market at the same 
time as registered shares.”94 Thus, the court ignored 
precedent because it believed that the adverse policy 
consequences that would result would be detrimental to 
investors. However, the court did certify its decision for 
interlocutory appeal to the Ninth Circuit. 

3. Judge Restani’s Majority Opinion 

On interlocutory appeal, the Ninth Circuit, in a 2-1 split, 
affirmed the district court’s decision, but on a different legal 
basis.95  

Like the district court, the Ninth Circuit agreed that Slack 
was a case of first impression, given the use of a direct 
listing.96 However, unlike the district court, Judge Restani did 
not adopt the broad meaning of “such security” and did not 
focus her analysis of “such security” by looking at legal 
precedent.97 Instead, she analyzed NYSE Section 102.01B, 
Footnote E, the regulatory change that allows companies to 
perform a direct listing.98 In her view, the NYSE rule requires 
a company to file a registration statement to perform a direct 
listing, and this same registration statement allows it to sell 
registered and unregistered shares;99 she explained her 
reasoning thus:  

Slack’s unregistered shares sold in a direct listing are 
“such securities” within the meaning of Section 11 
because their public sale cannot occur without the 
only operative registration in existence. Any person 
who acquired Slack shares through its direct listing 
could do so only because of the effectiveness of its 
registration statement.100 

 
94 Id. at 379.  
95 Pirani v. Slack Technologies, Inc., 13 F.4th 940, 943 (9th Cir. 2021).   
96 Id. at 946. 
97 Id. at 946–47.   
98 See supra Section II.B.2 for an analysis of Section 102.01B, Footnote 

E.  
99 Pirani, 13 F.4th at 948.  
100 Id. at 947 (emphasis added).  



  

1046 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

Thus, the court found that there was no tracing issue 
because all of Slack’s shares could be traced to the single 
registration statement required by Section 102.01B, Footnote 
E.  

In addition, the court also found that the legislative history 
of Section 11 supported this interpretation. The House 
Conference Report on the Securities Act stated that “[Sections 
11 and 12] entitle the buyer of securities sold upon a 
registration statement including an untrue statement or 
omission of material fact, to sue for recovery.”101 Here, Slack’s 
registered and unregistered shares were sold “upon a 
registration statement” because their shares could only be 
sold to the public once the statement became effective. This 
view, according to the court, is consistent with the drafters’ 
intention to put the responsibility of fair dealing upon those 
who make material statements relevant to the purchase or 
sale of a security.102 

Slack pressed for the Ninth Circuit to apply precedent on 
successive registration statements, which adopts the narrow 
reading of “such security” and would require the plaintiff to 
prove he purchased registered shares pursuant to a particular 
registration statement.103 Like the district court, Judge 
Restani disagreed because such an application would 
undermine the purpose of Section 11. Under Slack’s 
interpretation, companies would be incentivized to perform a 
direct listing over an IPO simply from a liability standpoint, 
which would allow them to file “overly optimistic” registration 
statements since they know that “they would face no 
shareholder liability under Section 11 for any arguably false 
or misleading statements.”104  

Thus, the majority, like the district court, prioritized policy 
concerns over precedent but did so through a different path of 
legal argumentation. Under the Ninth Circuit’s view, Pirani 
could establish standing despite not being able to trace his 
 

101 SAM RAYBURN, FEDERAL SUPERVISION OF TRAFFIC IN INVESTMENT, 
H.R. REP. NO. 73-85, at 5 (1933) (emphasis added).  

102 Pirani, 13 F.4th at 947–48. 
103 Id. at 948.  
104 Id.   



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1047 

shares back to Slack’s registration statement because Slack 
could not perform a direct listing without the registration 
statement required by Footnote E. 

4. Judge Miller’s Dissenting Opinion 

Judge Miller, in his dissent, reasoned that Slack’s motion 
to dismiss should have been granted in full.105  

Judge Miller disagreed with both the district court and the 
majority’s interpretation of “such security.” Miller argued that 
since Barnes, every Court of Appeals, including the Ninth 
Circuit in Hertzberg, had adopted the narrow reading of “such 
security.”106 In Judge Miller’s view, this alone resolved the 
case because Pirani could not show that the shares he had 
purchased were issued under the misleading registration 
statement, and thus he lacked standing to bring his Section 
11 claim.107 

In responding to the majority, Judge Miller correctly 
identified that the majority adopts neither the broad nor the 
narrow reading of “such security,” which was articulated by 
Judge Friendly in Barnes. Instead, the majority analyzed 
Section 11’s text and the NYSE rules to define “such security” 
as any security “whose public sale cannot occur without the 
only operative registration in existence.”108 Judge Miller 
accurately noted that this definition has no “basis in the 
statutory text,” and that there is no substantial difference 
between direct listings and IPOs to justify such a departure 
from precedent.109 Miller argued that even though the 
registration statement was essential to Slack’s direct listing, 
that fact did not imply that all shares—registered or 
unregistered—were “issued” under that registration 
statement. Instead, most of Slack’s shares that began trading 

 
105 Id. at 950 (Miller, J., dissenting).  
106 Id. at 952.  
107 Id.  
108 Id.  
109 Id.  



  

1048 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

were issued “well before the registration statement was 
filed.”110 

In addition, Judge Miller argued that the majority 
misunderstood Section 11’s legislative history. The phrase 
from the House Report that the majority used “plainly refers 
to ‘registered securities.’”111 The phrase does not reference 
unregistered securities that must wait until a registration 
statement to become effective before they can be sold on an 
exchange. 

Lastly, Judge Miller was not persuaded that the 
impossibility of proving tracing would be detrimental to 
plaintiffs because the registration statement is still subject to 
liability under Section 10(b) of the Securities Exchange Act.112 
More importantly, he argued that even if there are policy 
issues, courts have no basis for “changing the settled 
interpretation of statutory text,” and any changes must be 
made by Congress.113 

IV. THE ARGUMENT FOR INTERVENTION 

Having examined the Slack decision, I now move on to my 
main argument: Congress ought to re-examine Section 11, 
especially as it pertains to direct listings. I argue in Section 
IV.A that the post-Slack world is undesirable for the financial 
community. Section IV.B details that a world where the 
Supreme Court reverses Slack is also unwanted. Finally, 
Section IV.C makes the case for Congress or the SEC to 
intervene and proposes blockchain as a solution.  

A. The Majority’s Policy-Motivated Decision Creates 

 
110 Id. at 953. Here, Judge Miller made a distinction between shares 

that were issued and shares that were sold. Slack issued shares to 
shareholders well before the registration statement was filed, but the 
registered shares could only be sold once the registration statement became 
effective. Id.  

111 Id. (citing Barnes v. Osofsky, 373 F.2d 269, 273 (2nd Cir.1967)).  
112 Id. (explaining that companies are still liable for materially false 

statements made with scienter under Section 10(b)).  
113 Id. at 953.   



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1049 

Significant Problems 

The Slack majority’s interpretation of “such security” 
within Section 11 creates three separate problems: (1) it 
misunderstands Rule 144 and expands liability for direct 
listings; (2) it creates inconsistencies within Section 11; and 
(3) it conflicts with other circuits’ interpretations of the 
phrase.  

1. The Majority Misunderstood SEC Rule 144 and 
Expanded Liability for Direct Listings Beyond 
IPOs 

The majority, in holding that Section 11 applied to 
unregistered shares, misunderstood Rule 144. Traditionally, 
securities may be sold if they are registered under an effective 
registration statement or if they are exempt under Rule 
144.114 The majority held that Slack’s registered and exempt 
shares were equivalent and that both types fell within the 
meaning of “such security” within Section 11 because neither 
could be sold until Slack’s registration statement became 
effective.115 However, the majority cites nothing from the 
Securities Act or Section 11 to support this view.116 In fact, 
the opposite is true. Because its 165 million unregistered 
shares were exempt from registration, the sale of those shares 
did not rely upon any registration statement and thus the 
shares could be sold “before, during, or after a registration 
statement is declared effective.”117 Thus, Slack’s unregistered 
shares are not covered by the phrase “such security” because 
they could be sold independent of the registration statement’s 
timing. Neither the direct listing nor Slack’s registration 
statement was necessary for these unregistered shares to be 
sold.   

In addition, such a view of “such security” unintentionally 
expands Section 11 liability for direct listings beyond liability 

 
114 See supra Part II.  
115 Pirani, 13 F.4th at 948.   
116 Id.  
117 Feldman et al., supra note 12.  



  

1050 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

in IPOs. In an IPO, an issuer company faces liability only for 
the shares it sold pursuant to a registration statement.118 The 
majority’s holding in Slack means that a company faces 
Section 11 liability for shares registered pursuant to a 
registration and for any exempted securities sold 
simultaneously.119 This means that a “company faces strict 
liability for shares it did not even register for sale” because 
they would be liable for the sale of exempt securities by third 
parties.120 In addition to expanding liability beyond a 
traditional IPO, it makes little sense to impose liability on a 
company for the actions of a third party even in a direct 
listing. 

Ultimately, expanding liability potentially threatens the 
viability of direct listings.121 Direct listings are a useful tool 
since they “offer startups’ self-starters and angel investors the 
chance to reap returns on their high-risk investments” by 
offering the liquidity of a public market and enabling them to 
sell shares at a market price.122 However, because Section 11 
gives prospective plaintiffs access to strict liability, companies 
may find that the harms caused by shareholder litigation will 
outweigh the value obtained from a direct listing. 

2. The Majority’s Interpretation of “Such 
 

118 See supra Section II.A.  
119 Feldman et al., supra note 12.  
120 Id. The following example illustrates how liability is expanded in a 

direct listing. Assume there is a company that has one million registered 
shares and one million shares that are exempted from registration under 
Rule 144. Assume that the company’s misrepresentations caused the share 
price to decrease by $5/share. If the shares were sold in a traditional IPO, 
the company would be liable for damages of $5 million because the only 
shares sold in the IPO were the registered ones. If the shares were sold like 
in Slack’s direct listing, the damages would be $10 million because the 
company would be liable for the decrease in value in both registered and 
unregistered shares. The majority’s view of “such security” specifically holds 
that registered and unregistered shares would fall within Section 11’s 
protections. See id.  

121 Motion of the CATO Institute for Leave to File as Amicus Curiae in 
Support of Defendants and Appellants at 3, Pirani v. Slack Technologies, 
Inc., 13 F.4th 940 (9th Cir. 2020) (No. 20-16419).  

122 Id. at 5.  



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1051 

Security” is Inconsistent with Other Uses of 
the Phrase in Section 11 

The phrase “such security” appears numerous times within 
the Securities Act123 and specifically within Section 11, but 
the majority only analyzes it in the context of Section 11(a). In 
fact, the phrases “such security” and “such securities” appear 
in the Securities Act at least 61 times.124 Through the 
Securities Act, “such security” refers to “a specific security (or 
type of securities) at issue in the relevant provision,” but the 
majority’s interpretation from Section 11(a) refers to “both to 
a specific type of security (registered securities) at issue and 
to other, similar (but exempt) securities.”125 Thus, the 
majority unintentionally expands the kinds of securities 
covered under Section 11(a) beyond what is envisioned by the 
Securities Act. 

In addition, the majority’s interpretation of “such security” 
from Section 11(a) conflicts with the phrase’s use in Section 
11(e), which details how damages are calculated.126 Section 
11(e) caps damages to the “difference between the amount 
paid for the security” and the “price at which such security 
shall have been disposed of in the market before suit.”127 
Under Section 11(e), “such security” refers to the specific 
shares owned by a plaintiff and not some hypothetical 
equivalent. Damages can only be calculated if the plaintiff can 
identify the price at which her specific share was purchased 
and then the price at which it was sold.128 The majority’s 
reading of “such security” means that it becomes “impossible 
to calculate damages for a specific share” because such an 

 
123 For example, Section 5, Section 11(e), and Section 12 all use the 

phrase “such security.” See 15 U.S.C. § 77e; 15 U.S.C. § 77k; 15 U.S.C. § 77e.   
124 Brief of Amicus Curiae Former SEC Commissioner Joseph A. 

Grundfest in Support of Defendants’-Appellants’ Petition for Rehearing and 
Rehearing En Banc at 10–11, Pirani v. Slack Technologies, Inc., 13 F.4th 
940 (9th Cir. 2021) (No. 204-16419) [hereinafter Brief of Grundfest].  

125 Id. at 11.  
126 Feldman et al., supra note 12.  
127 15 U.S.C. § 77k(e) (emphasis added). 
128 Feldman et al., supra note 12.   



  

1052 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

interpretation includes securities that are alike, instead of 
being limited to the specific shares purchased.129 

Thus, the majority’s new interpretation of “such security” 
is untenable because it contradicts the phrase’s meaning in 
both the Securities Act and within Section 11.  

3. The Majority’s Interpretation Conflicts with 
Other Circuits’ Interpretations of Section 11 
Liability and with the Ninth Circuit’s Own 
Precedent 

The Slack decision chooses to adopt neither the narrow nor 
the broad reading of “such security.” Other circuits have 
consistently interpreted the phrase “such security” using the 
narrow reading for the last fifty years.130 The majority based 
its departure from precedent on Slack being a case of first 
impression  and the case not involving successive 
registrations, but the majority did not explain why these 
distinctions matter.131 As Judge Miller correctly pointed out 
in his dissent, these distinctions make no difference, because 
in both direct listings and successive registrations, there is a 
mix of registered shares and unregistered, exempt shares.132 
Thus, even though Slack was a case of first impression, the 
facts were not new at all, and plenty of prior cases have dealt 
with a mix of both registered and unregistered shares.  

In addition, the Slack decision departs from the Ninth 
Circuit’s own precedent. As explained in Section III.A, the 
Ninth Circuit adopted the narrow reading of “such security” 
in Hertzberg. The majority tried to avoid Hertzberg by 
attempting again to make a distinction between cases that 

 
129 Brief of Grundfest, supra note 124, at 12.  
130 Feldman et al., supra note 12; see also Plumbers’ Union Local No. 

12 Pension Fund v. Nomura Asset Acceptance Corp., 632 F.3d 762, 768 & 
n.5 (1st Cir. 2011); APA Excelsior III L.P. v. Premiere Techs., Inc., 476 F.3d 
1261, 1271 (11th Cir. 2007); Rosenzweig v. Azurix Corp., 332 F.3d 854, 873 
(5th Cir. 2003); Lee v. Ernst & Young, LLP, 294 F.3d 969, 975–78 (8th Cir. 
2002); Joseph v. Wiles, 223 F.3d 1155, 1159–60 (10th Cir. 2000).  

131 Feldman et al., supra note 12. 
132 Id.  



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1053 

involve multiple registration statements, but like before, this 
distinction misses the point. 

The Slack majority effectively eliminated the tracing 
requirement in the direct listing, which undermines the entire 
legal framework underlying Section 11.  

B. Supreme Court Reversal is Imminent, but Slack’s 
Reversal Could Threaten Investor Protections  

As explained in Section IV.A.3, the Ninth Circuit’s ruling 
“disrupts decades of predictable, well-established 
jurisprudence” and departs from other circuits’ and the Ninth 
Circuit’s own precedent.133 Legal commentators believe this 
warrants the Supreme Court’s review and reversal.134 As of 
December 13, 2022, the Supreme court has agreed to hear 
Slack’s appeal.135 If the Supreme Court were to reverse Slack, 
its ruling would effectively prevent investors from bringing 
Section 11 claims in a direct listing context because it is 
impossible to trace shares due to the simultaneous offering of 
unregistered and registered shares.136 Judge Restani feared 
this when she wrote in her majority opinion that “interpreting 
Section 11 to apply only to registered shares in a direct listing 
context would essentially eliminate Section 11 liability for 
misleading or false statements made in a registration 
statement in a direct listing for both registered and 
unregistered shares.”137 This result is undesirable for several 
reasons.  

First, Section 11 is an important provision for investor 
protections. Both Judge Miller and several legal 
commentators have argued that other provisions of the federal 
securities laws, including Sections 10(b) and 14(a) of the 

 
133 Id.  
134 See id. (“Slack represents a significant departure in the imposition 

of strict liability in securities regulation. . . . We believe this decision 
warrants reversal by the Supreme Court.”).  

135 Godoy, supra note 18.  
136 See supra Section III.C.  
137 Pirani v. Slack Technologies, Inc., 13 F.4th 940, 948 (9th Cir. 2021).   



  

1054 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

Securities Exchange Act, can protect investors.138 While these 
arguments have merit, Section 11 is important because it 
offers investors access to a strict liability standard, and the 
SEC intentionally chose to subject companies that performed 
direct listings to Section 11 liability when it approved the 
NYSE Section 102.01B, Footnote E (the provision that allowed 
companies to perform direct listings on the NYSE).139 Thus, 
reversing Slack would run contrary to the SEC’s specific 
intention to subject companies who conduct direct listings to 
Section 11 liability. 

In addition, shareholders bear much more of the costs of 
going public in a direct listing compared to IPOs, thereby 
justifying access to Section 11 claims. As detailed in Part I, in 
an IPO, underwriters or banks get to buy a company’s stock 
at a discount, while new investors “pay around half of the 
bankers’ fees” since they bear the cost of that discount.140 In a 
direct listing, the company bears the cost of all the bank’s fees 
because no new shares are issued, which is directly passed 
onto existing shareholders. Thus, since investors in an IPO 
pay less costs and have access to Section 11 liability, it follows 
that investors in a direct listing also ought to have access to 
Section 11 because they pay more than IPO investors do. 

Second, Slack’s reversal would encourage companies to 
engage in riskier behavior. Because it would be impossible for 
investors to have standing for Section 11 claims, companies 
could file overly optimistic registration statements “knowing 
that they would face no shareholder liability under Section 11 
for any arguably false or misleading statements,” which would 

 
138 See Brief of Amici Curiae Securities Industry and Financial 

Markets Association, Chamber of Commerce of the United States of 
America, and National Venture Capital Association in Support of 
Defendants-Appellants at 6, Pirani v. Slack Technologies, Inc., 13 F.4th 940 
(9th Cir. 2021) (No. 20-16419).  

139 See Nickerson, supra note 6, at 1001.  
140 Tatum Sornborger, Move Over IPOs: Unicorn Direct Listings May 

Be the New Mythical Beasts in Town, 26 FORDHAM J. CORP. & FIN. L. 215, 
233 (2021).  



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1055 

create a “loophole large enough to undermine the purpose of 
Section 11 as it has been understood since its inception.”141 

While there are business-related reasons for a company to 
choose a direct listing over an IPO, Slack’s reversal would 
certainly open the possibility for companies to abuse Section 
11’s current legal regime. In fact, one law firm has praised this 
feature of direct listings. Latham & Watkins, the law firm that 
acted as counsel to Spotify in their direct listing, proclaimed 
that an important advantage of performing a direct listing is 
“the potential to deter private plaintiffs from bringing claims 
under Section 11.”142 The firm’s commentators, like Judge 
Restani, recognized that “few (if any) purchases will be able to 
trace their stock to the challenged registration statement” 
since “both registered and unregistered are immediately sold 
into the market in a direct listing.”143 Thus, while it is 
uncertain how companies will react to Slack’s potential 
reversal, there is great potential for law firms to advise 
companies about this legal loophole. 

Therefore, Slack’s reversal threatens the adequacy of 
investor protections and introduces the opportunity for 
companies to abuse the legal regime surrounding Section 11 
in direct listings.  

C. Congress and the SEC Ought to Re-Examine 
Section 11 as it Applies to Direct Listings 

Sections IV.A and IV.B have shown that both worlds—one 
where the Slack decision continues to be good law and one 
where the Supreme Court reverses Slack—are undesirable for 
several reasons. Given this, Congress ought to intervene to 
“fix” Section 11 and the tracing requirement as it relates to 
direct listing. This section makes the argument by showing 
that courts do not have the tools to fix the issue and have 

 
141 Pirani, 13 F.4th at 948.  
142 See Andrew Clubok et al., Complex and Novel Section 11 Liability 

Issues of Direct Listings, CORPORATE COUNSEL (Dec. 20, 2019), 
https://www.lw.com/thoughtLeadership/section-eleven-liability-direct-
listings [https://perma.cc/L9ZA-2VKY].  

143 Id.  



  

1056 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

asked Congress to fix Section 11. It concludes by discussing 
potential solutions Congress can investigate.  

1. Courts are Unequipped to Resolve the 
Problems with Section 11 and the Tracing 
Requirements and Have Asked Congress to 
Intervene 

Over time, courts have identified several problems with 
the tracing requirement even outside the direct listing 
context. For example, in 2013, the district court in In Re 
Century Aluminum stated that tracing shares, in general, is 
“often impossible” because “many brokerage houses do not 
identify specific shares with particular accounts but instead 
treat the account as having an undivided interest in the 
house’s position.”144 Slack’s direct listing exacerbated the 
problems with the tracing requirement because it became 
entirely impossible for an investor like Pirani to trace his 
shares back to the registration statement.145  

Plaintiffs have cited these problems with the tracing 
requirement; but while judges are sympathetic, they have 
refused to change the doctrine. For example, the plaintiffs in 
Barnes made the same argument as Pirani in Slack that it 
would be impossible for them to plead a Section 11 claim 
because they could not determine whether their shares had 
been issued under the challenged registration statement.146 
As explained previously, Judge Friendly ultimately rejected 
their argument, but he did note that their argument could 
suggest that it might be time “for Congress to re-examine [the 
Securities Act and the Exchange Act] in light of thirty years’ 
experience.”147  

Overall, despite these issues, courts, until Slack, have 
continued to enforce the tracing requirement because it is “the 
condition Congress has imposed for granting access to the 
 

144 In re Century Aluminum Co. Sec. Litig., 729 F.3d at 1107 (quoting 
Barnes v. Osofsky, 373 F.2d 269, 271–22 (2nd Cir. 1967)). 

145 See supra Section III.C.2.  
146 Barnes, 373 F.2d at 272.  
147 Id. at 273.  



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1057 

‘relaxed liability requirements’ § 11 affords.”148 However, the 
strict liability standard has no value to plaintiffs if it is 
impossible to successfully plead facts that satisfy the tracing 
requirement.  

Analyzing the Slack decision leads to two conclusions. 
First, the decision shows why courts are ill-equipped to fix the 
tracing doctrine. The majority’s decision has been heavily 
criticized by various commentators.149 However, these critics 
do not consider that “compared to Congress, the SEC, and the 
exchanges, the courts are ill-equipped to see through the 
complex interplay between regulations and economic 
incentives at work in Section 11.”150 Instead, it should be “up 
to lawmakers and regulators to alter Section 11, should they 
find that statute’s balance is not being served for direct 
listings.”151 Judges are not in a position to rewrite the statute, 
especially in the direct listing context given that it is a novelty 
in the already extremely complicated process of a company 
going public.  

Second, the strained majority opinion was, arguably, a 
byproduct of the problems with the tracing doctrine. Slack 
showed that Section 11 does not work in the direct listing 
context, and the majority, acknowledging these problems, 
used the unique circumstances of a direct listing to justify its 
departure from precedent because it believed that investors 
would be significantly harmed without access to Section 11.  

Ultimately, the problems with the tracing requirement are 
not new. Judges are either forced to follow precedent (thereby 
disadvantaging plaintiffs) or depart from precedent (thereby 
facing criticism for “legal activism”). This is exactly what 
happened in Slack. The majority chose to depart from 
precedent and faced severe backlash from legal 
commentators, while the dissent recognized these issues but 
 

148 In re Century Aluminum, 729 F.3d at 1107 (quoting Abbey v. 
Computer Memories, Inc., 634 F. Supp. 870, 875 (N.D. Cal. 1986)).  

149 See supra Section IV.A.  
150 Motion of the CATO Institute for Leave to File as Amicus Curiae in 

Support of Defendants and Appellants at 7, Pirani v. Slack Technologies, 
Inc., 13 F.4th 940 (9th Cir. 2020) (No. 20-16419).  

151 Id.  



  

1058 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

concluded that the court had “no basis for changing the settled 
interpretation of the statutory text” and noted that it is 
Congress’s responsibility to make new legislation or change 
the problems with old legislation.152 Neither approach is 
desirable, and thus, Congress or the SEC must step in.  

2. Congress and the SEC Should Intervene to 
Change Section 11 as it Applies to Direct 
Listings 

i. The SEC and Congress Have Authority to 
Change Section 11’s Bearing on Direct 
Listings 

The problems articulated in Part IV are sufficient to raise 
SEC or Congressional review of the NYSE rules.  

First, the SEC can only approve rule changes if it finds that 
the change would be “consistent with the requirements of this 
chapter and the rules and regulations issued under this 
chapter that are applicable to such organization.”153 The 
organization at issue here is the NYSE, a public exchange. 
Under Section 6(b)(5) of the Exchange Act, the SEC is 
required to ensure that exchange rules are 

designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles 
of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, 
processing information with respect to, and 
facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free 
and open market and a national market system, and, 
in general, to protect investors and the public 
interest.154 

Thus, the SEC is tasked with creating exchange rules that 
both prevent fraudulent and manipulative acts and protect 
 

152 Pirani v. Slack Technologies, Inc., 13 F.4th 940, 953 (9th Cir. 2021) 
(Miller, J., dissenting). 

153 15 U.S.C. § 78s(b)(2)(C).  
154 15 U.S.C. § 78f(b)(5) (emphasis added).  



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1059 

investors. Here, Slack’s reversal would invite companies to act 
fraudulently because they do not have to fear Section 11 
liability and could invoke investor protection issues because 
investors cannot prove tracing in the direct listing context. 

Second, assuming the Supreme Court reverses Slack, 
Congress is authorized to override the Supreme Court’s 
decision because the reversal concerns a question of statutory 
interpretation.155 While the traceability requirement is a 
judge-made doctrine, it is fundamentally based upon Section 
11’s text and, specifically, the phrase “such security.” Thus, 
Congress is also warranted in changing this doctrine based 
upon the interpretation of a statute.   

ii. Blockchain has the Potential to Fix Tracing 
Issues in Direct Listings 

a. Background on Blockchain 

Blockchain technology, known as distributed ledger 
technology, is a relatively new type of information technology 
that is used to record “transactions involving assets without 
the need for a central intermediary to track ownership of those 
assets in an authoritative ledger.”156 Blockchain’s founder, an 
unidentified person under the alias “Satoshi Nakamoto,” 
identified a problem. He noticed that business on the internet 
relied on financial institutions to serve as trusted third parties 
to process electronic payments, which generated costs in the 
form of fees.157 Nakamoto believed this arrangement to be 
inefficient; he thought that an electronic payment system 
based on cryptographic proof would allow two parties to 
transact directly with each other, rather than relying on a 
third party.158  
 

155 An empirical study shows that, from 1975 to 1991, on average, each 
Congress had overridden about a dozen of the Supreme Court’s statutory 
decisions. William N. Eskridge, Jr., Overriding Supreme Court Statutory 
Interpretation Decisions, 101 YALE L. J. 331, 335–36 (1991).  

156 J. Travis Laster & Marcel T. Rosner, Distributed Stock Ledgers and 
Delaware Law, 73 BUS. LAW. 319, 319 (2018).  

157 See id. at 320.  
158 See id.  



  

1060 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

Blockchain has two critical features: a distributed ledger 
and a method for updating that ledger by consensus.159 A 
ledger is a “database of all recorded transactions related to the 
ownership of the asset tracked by the ledger.”160 In a 
distributed ledger system, all participants have copies of the 
same ledger, and each can see a record of every transaction 
that has occurred.161 The core of blockchain’s technology is the 
distributed ledger because, if used correctly, it would replace 
the need for third parties in transactions. Blockchain’s 
distributed ledger functions properly because all participants 
work together to update it whenever a transaction takes 
place.162  

This is where the second feature comes in; blockchain uses 
a concept called “proof of work” to verify transactions. Under 
this approach, 

a network participant must first perform the work 
necessary to assemble a series of proposed 
transactions into a group. Each group of proposed 
transactions is called a block, giving rise to the “block” 
in “blockchain.” Each block is linked mathematically 
to the block posted immediately before it in time, 
giving rise to the term “chain” in “blockchain.” 
Network participants who add blocks to the ledger are 
called “miners,” and they receive a reward of newly 
minted bitcoins and transaction fees to compensate 
them for the work necessary to assemble and validate 
a new block.163  

Once a miner assembles a new block, it sends it to the 
network, and if most other participants verify the solution, 
then the block will be added to the distributed ledger.164 Thus, 
blockchain works through an incentive system where a 
miner’s work will be “checked” by her peers and is motivated 

 
159 Id.  
160 See id. at 322.  
161 Id.  
162 See id.  
163 Id. at 324.  
164 Id.  



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1061 

by the reward of bitcoin, a type of digital currency used in 
blockchain.165  

b. Blockchain Technology in Stock Ledgers 
and Application to Tracing in Direct 
Listings 

A stock ledger is a type of ledger that shows all legally 
relevant transactions in a corporation’s stock, including 
information on the date of the transaction, the number of 
shares acquired, and more.166 Stock ledgers have normally 
been maintained centrally by corporations, but over time, 
corporations have outsourced this work to the Depository 
Trust Company (DTC), a central intermediary that holds over 
75% of the shares of publicly traded companies.167   

Delaware recognized the value of using blockchain 
technology in stock ledgers. In May 2016, Delaware’s then-
Governor Jack Markell announced the Delaware Blockchain 
Initiative, which expressly authorized using blockchain’s 
distributed ledger to track ownership of a corporation’s 
shares.168 From its initial issuance, a share of stock would 
have an encrypted record of its ownership history, and using 
this record, stockholders could tell where the share came 
from.169  

This alone has incredible potential in direct listings; 
applying blockchain to Slack’s direct listing would have 
resolved Slack’s tracing issue entirely. If Slack were required 
to register their shares using blockchain, a network 
participant could determine where an investor’s shares came 
 

165 Id. at 324–25.  
166 Id. at 325.  
167 Id. at 325–26.  
168 Id. at 327, 329. Delaware State enacted three blockchain 

amendments to Del. Code Ann. Tit. 8, §219, 224, 23 (2022). These 
amendments ensured that Delaware corporations could use blockchain 
technology to create distributed stock ledgers. See id. at 327–30.  

169 Jonathan Rotenberg, Blockchain Technology May Enable Tracing 
in Securities Act Litigation, KATTEN (Mar. 22, 2018), 
https://katten.com/blockchain-technology-may-enable-tracing-in-securities-
act-litigation-1 [https://perma.cc/333Z-FHBV]. 



  

1062 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

from because that information would be contained within 
blocks. Thus, an investor like Pirani would have the potential 
to know whether his shares were registered or unregistered 
ones. If his shares were sold by an investor who was 
authorized to sell shares pursuant to Rule 144, then Pirani’s 
shares would be unregistered ones, while if his shares were 
sold by an investor authorized to sell shares pursuant to 
Slack’s registration statement, then Pirani’s shares would be 
registered ones. Thus, if implemented correctly, blockchain 
could seemingly solve all problems with the tracing 
requirement, especially in the context of, but even beyond, 
direct listings.  

c. Congress or the SEC Ought to Either 
Require or Encourage Blockchain-Based 
Stock Ledgers 

Congress or the SEC have two possible approaches to 
introducing blockchain. Either they can require companies to 
register their shares using blockchain, or they can expressly 
authorize blockchain-based stock ledgers and let market 
forces push companies to adopt them. 

The former approach would involve Congress or the SEC 
promulgating a rule requiring all of a company’s publicly 
traded shares to be offered on a regulated blockchain 
platform. The principal benefit of mandatory regulations is 
that Congress or the SEC could specify and control how 
blockchain technology ought to be implemented to maximize 
its efficiency and usefulness.  

However, this approach assumes that both Congress and 
the SEC fully understand blockchain and its ramifications. 
Even though Congress has made efforts to comprehend 
blockchain,170 it would likely take months or years for either 

 
170 The Congressional Blockchain Caucus and its members advocate for 

the future of blockchain technology and urge Congress to put resources 
toward understand the technology. It was founded in 2016. About, CONG. 
BLOCKCHAIN CAUCUS, https://congressionalblockchaincaucus-
schweikert.house.gov/about [https://perma.cc/LDD8-DRWF] (last visited 
Jan. 9, 2023).  



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1063 

Congress or the SEC to formulate coherent regulations for 
blockchain stock ledgers and even longer for companies to 
adhere to those regulations. Thus, while compulsory 
regulations are ideal in a vacuum, blockchain’s complexity 
and the associated costs of research and implementation make 
such mandatory regulations a difficult option. 

In addition, the SEC’s past efforts to compel 
decimalization171 create doubt about whether companies 
would be receptive to compulsory blockchain regulations. In 
1997, Congress announced that it would direct the SEC to 
adopt rules mandating decimalization, and most U.S. markets 
planned to make the switch by 2000.172 At the time, it was 
thought that decimalization had clear benefits, but it has 
since proven to be damaging to U.S. markets.173 Blockchain 
regulations, like decimalization ones, would be a massive shift 
in market strategies, and companies may fear and oppose 
another government mandate given decimalization’s 
history.174 Thus, both blockchain’s complexity and the SEC’s 
past regulations regarding decimalization are serious 
obstacles to this method.  

Although a mandatory blockchain regime has its issues, 
there is potential for market forces to encourage companies to 
adopt blockchain-based stock ledgers. An example of this 
latter approach is Delaware’s blockchain initiative and 
amendments, which made it permissible for Delaware 
companies to use blockchain technology to maintain stock 
ledgers and communicate with shareholders.175 After the 
blockchain amendments passed, it was up to Delaware 
corporations to begin researching ways to implement this 

 
171 “Decimalization describes listing stock prices in penny increments 

rather than in the long-standing American method of 1/8th of a dollar 
increments.” Sean Belcher, Tracing the Invisible: Section 11’s Tracing 
Requirement and Blockchain, 16 COLO. TECH. L.J. 145, 168 (2017).  

172 Id. at 168.  
173 Decimalization made it significantly harder for small companies to 

find IPO underwriters, drastically increased market volatility, decreased 
liquidity, and increased the price-per-trade for investors. Id. at 169.  

174 See id. at 169. 
175 Laster & Rosner, supra note 156, at 330.  



  

1064 COLUMBIA BUSINESS LAW REVIEW [Vol. 2022 

technology.176 Given the benefits arising from a blockchain-
based stock ledger,177 market forces should push companies 
toward adopting the technology.  

It is important to note that, even if corporations choose to 
adopt blockchain by themselves, any blockchain-based system 
will “require standardization from the market’s self-
regulatory bodies to be effective and sufficiently 
transparent.”178 This method would certainly be easier for 
Congress or the SEC to implement because Delaware has 
already paved the legal framework necessary for companies to 
use blockchain in stock ledgers. Congress or the SEC can 
model their regulations off of the Delaware General 
Corporation Law, which would be more straightforward to 
execute than the former approach. Indeed, while both 
approaches certainly have merit, Delaware chose to let 
market forces decide corporation’s behavior, and this seems 
like the preferable option.  

V. CONCLUSION 

Overall, the controversial Slack decision is a byproduct of 
the problems with the tracing doctrine. The Supreme Court 
has already agreed to take the case, but regardless of the 
outcome, Congress and the SEC still ought to address the 
issue. Using blockchain technology would be an effective way 
for Congress and the SEC to ameliorate the tracing problems 
articulated in Slack, and blockchain’s application to tracing 
could resolve decades of problems with the doctrine. If done 
successfully, investors will be adequately protected, and 
 

176 Id. at 331.  
177 An analysis of Delaware’s blockchain initiative shows that a 

blockchain-based stock ledger would make property rights clearer, add 
transparency and greater accuracy to both proxy voting and dividend 
payments, and make securities lending records more accurate. See Andrea 
Tinianow, Delaware Blockchain Initiative: Transforming the Foundational 
Infrastructure of Corporate Finance, HARV. L. SCH. F. ON CORP. GOVERNANCE 
(Mar. 16, 2017), https://corpgov.law.harvard.edu/2017/03/16/delaware-
blockchain-initiative-transforming-the-foundational-infrastructure-of-
corporate-finance/ [https://perma.cc/79XP-L8N4].  

178 Belcher, supra note 171, at 170. 



   

No. 2:1026] DIRECT LISTINGS AND THE TRACING DOCTRINE 1065 

companies will not face superfluous liability. Both outcomes 
will encourage corporations like Slack to continue using direct 
listings. However, because blockchain is a new, complex 
technology, it will take time to fully understand and put in 
place regulations that optimize blockchain’s efficiency and 
usefulness. If blockchain is ultimately unsuccessful, Congress 
or the SEC may be forced to abandon the tracing requirement 
in the direct listing context entirely and create a new legal 
regime for direct listings.  

Ultimately, the status quo is undesirable, and change 
ought to take place. Further research into blockchain 
technology and its application to stock ledgers and tracing is 
a step in the right direction.