Court Ruling Limits Section 11 Liability in Direct Listings Post-Slack

In Cupat v. Palantir Technologies, Inc., a federal district court in Colorado dismissed a putative securities class action brought under Section 11 of the Securities Act of 1933.

Paul Weiss writes that the plaintiff alleged that Palantir’s registration statement, filed in connection with its 2020 direct listing, contained materially misleading statements.

Relying on the US Supreme Court’s decision in Slack Technologies, LLC v. Pirani, the court held that plaintiffs could not plausibly allege that the shares they purchased were traceable to the allegedly misleading registration statement.

The decision is a significant development in post-Slack litigation and signals heightened barriers to asserting Section 11 claims in the direct listing context.

Palantir, a software company, went public via a direct listing in 2020, a process in which both registered and unregistered shares become available for trading immediately, unlike a traditional initial public offering (IPO), where unregistered shares are subject to a lock-up period.

In this case, approximately 53% of the publicly available shares were registered under the direct listing registration statement, while the remaining 47% were unregistered.

Following a decline in Palantir’s stock price, shareholders filed suit, alleging misleading statements in the registration materials and seeking to hold the company liable under Section 11.

The court dismissed the Section 11 claim, concluding that plaintiffs failed to meet the tracing requirement established in Slack. The court rejected plaintiffs’ probability arguments, their request for discovery to demonstrate traceability, and their invocation of the integrated offering doctrine.

The ruling emphasized that only concrete, plausible allegations that purchased shares are traceable to the challenged registration statement will suffice, and that Slack likely precludes liability in many direct listing scenarios.

Attorneys should note that this decision reinforces the importance of Slack in shaping the future of securities litigation. Companies considering direct listings may now do so with greater confidence that strict tracing requirements will shield them from Section 11 exposure.