Confusion and Uncertainty about the Section 12(a)(2) Claim at Slack Oral Argument

The Supreme Court recently held oral argument in Slack Techs., LLC v. Pirani (No. 22-200) to consider whether a buyer of securities in a direct listing, which involved registered and unregistered shares, needed to prove that he bought shares covered by an allegedly misleading registration statement to be a proper plaintiff under either section 11 or 12(a)(2) of the Securities Act. The questions and answers at the oral argument revealed confusion and uncertainty about section 12(a)(2) and one of its main precedents, Gustafson v. Alloyd Co., 513 U.S. 561 (1995). The purpose of this comment is to suggest that Gustafson answers some but not all of the questions the justices had. In particular, if the Court does not reconsider Gustafson, it should find that liability under section 12(a)(2) for the Slack direct listing arises solely for the registered shares and not for the sale of the unregistered shares. The majority in Gustafson reasoned that the word prospectus in section 12(a)(2) must have the meaning of a prospectus for a registration statement and therefore relates to public offerings by issuers and their controlling shareholders. For Slack’s direct listing, the prospectus and the delivery of the prospectus were for the registered shares