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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/opinion/articles/2023-06-01/ai-bot...

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 (covered by the registration document) and which are unregistered. According to SCOTUS, Pirrani can't tell, so he can't prove standing under Section 11.

10. He should have sued the company under Section 10 of the Securities Act instead. This is the same mechanism used against "mature" companies. Lawyers don't like to sue under Section 10 because of reasons.

Some stuff which is still unclear to me:

1. People speak of owning n shares of a company. I always thought this was simply shorthand for something like: "I own shares #1034852, #1092647, and #2986246".

2. 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.

3. If each share is associated with a share number, and people only hold whole shares in principle, then isn't the provenance of that share clear? Whether it is registered or not should simply be a matter of following it back in time?

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.

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 a share of Slack, not a specific piece of paper.

His broker can prove they bought unregistered shares, but they’re not the plaintiffs here.

I imagine this changed when paper certificates went away.

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.

You can still request paper share certificates and get registered shares, but it's a royal PITA. (Or at least you could do that 20 years ago. I haven't done it for some time.)

https://www.forbes.com/advisor/investing/stock-certificate/

> Nominee brokerage accounts are cheap and fast.

India and Australia you own the share and you still have cheap and fast brokerage accounts.

> 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.

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?

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

No they’re fungible. The vast majority are held as book entries in the DTCC[1]. Even if you pull them out of that system, they still don’t have an individual identification number like a bond’s serial number.

[1]: https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_...

> like a bond's serial number

Bonds are also typically fungible in the same way these days (including typically being held by a clearing house if they are traded).

Being fungible does not imply that something does not have a serial number or identification number. For example US dollar bills are fungible but they have serial numbers.

They used to when they were actual physical share certificates. But they were all tracked in brokerages anyway and that’s been mostly done away with (you can still buy physical share certificates in some cases, and some people collect old invalidated ones).

> Usually fractional shares are calculated to the third or fourth decimal place.

Does this mean that it's possible that the total number of shares people own doesn't add up exactly to the number issued?

You’re conflating floating point numbers with decimals.

I m win it shares.are rounded to four places during a dilution event, what happens to the cumulative rounding error?

rounding is performed such that all the pieces add to 100%

so somebody gets the piece that in your mind is in question. I don't know where the piece goes or i would tell you, but it's not lost

> 9. Notably, a direct listing makes it unclear which shares are registered (covered by the registration document) and which are unregistered. According to SCOTUS, Pirrani can't tell, so he can't prove standing under Section 11.

Right. If you read judge Gorsuch's statement quoted in the article a bit between the lines, he says: The Securities Act is a nonsense law in this aspect. If a company makes incorrect statements in a public listing and offer you shares they will be liable. But if you buy shares of the same company from someone else who owned the shares before the company was listed, the company is not liable for their wrongdoing. There is no reason why some shares of the same type of a single company deserve more protection than others depending on who was a previous owner. A dysfunctional law.

It’s not a dysfunctional law. It seems perfectly reasonable for a company to have additional responsibilities as a seller of shares. It seems quite ludicrous for the company to be liable when a third party sells shares even if that third party is an employee. It’s not that the share inherently comes with additional protections it’s that there are additional responsibilities based on who the seller is.

I think if a company failing to publish certain disclosures forced people to hold and not sell their shares until such time as the disclosures could be made people would be outraged.

But if the company is misrepresenting facts, shouldn’t it at least have liability to that third party?

I guess maybe this case leaves that open?

At least the day they go public they should be liable the same way for the information they give. It does not make the new owner or the share any different that it was originally sold before the company was listed.

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.)

I've always been amazed at how much content he writes every day. Typically 3 topics, often quite different, with hypothetical situations added, laymen explanations of esoteric topics, legal arguments each side is likely to bring along with some of their pitfalls. Footnotes and other articles of interest are also provided.

Matt Levine often spends six dense paragraphs of background explanation (much of which is review, if you are a regular reader) before getting to actual topic of the headline.

From a lesser writer, this would be disqualifying! Somehow I find myself enjoying it.

He’s one of those rare writers I read just for style. The subject matter is always interesting, but he could write that same volume of prose about the same small rock, every day, and it would be an engaging read.

The magic combination of skill, experience and good tools.

What would be the easiest way to get his work on kindle with zero recurring effort on my part ?

I love Money Stuff but hate reading for pleasure on an LCD display?

Interested in this too. I am trying to use Kindle Scribe more.

Subscribe to his newsletter (free) + set up a script/ifttt/zapier to convert to pdf and forward to your kindle email address

if he has a rss feed, you can use calibre to fetch it package it into a ebook format and send it to your kindle via email. each kindle account has a email address associated with it. You will have to allow the sender email that you set calibre to use in your kindle account but after that its automatic

that is interesting, may not have, how in the world does the accounting work in this scenario, they just pool everything together similar to that critique of Amazon with mixed inventory or whatever that problem is called? I always thought these sorts of things could be mapped to some kind of FIFO ordering to establish ownership nitty gritty ownership. I pondered this mapping before thinking about taxes where taxes paid queue up into some governmental account, and taxes spent take the head of the queue which maps to some individual tax payer. Why can't we process and form accounting associations like this?

I think the problem with this article is the subject doesn't lend itself well to Axios's bullet points style. Their thing is to get to the point with as little ceremony as possible, but that doesn't work very well when there is so much context needed to understand the story.

Weirdly the Axios style is usually the sweet spot for me, but this one misses the mark.

I think the specific problem with this is that they use the "unregistered" / "registered" jargon without actually defining it first. Just one opening bullet point in "Details" that defines unregistered/registered shares and explains that buyers can't tell which they have would have done the job IMO.

Everything is clickbait and too long now. It used to be a good newspaper told you everything you needed to know if the heading and/or the first few paragraphs. Now you have to skim read a whole article to find the only sentence that has useful information. That is even if there is any.

Wow, you're right!

From being on the school newspaper (nerd) with a ruthless English teacher as editor, I learnt the older style you just described.

Actually I learnt it by having large swathes of my text highlighted and deleted with an instruction "rewrite this".

I didn't realise how bad modern news is at this until you pointed it out. It's fairly common these days for me to start reading an article but still have little idea what it's about beyond the clickbait headline when I'm a third or a quarter way through an enormous read, so I just give up and leave.

I wonder when and why this changed?

There are a couple og good Chrome extensions that use GPT to summarize websites. Gpt3.5 is good enough, so it's pretty cheap. Now I only need one that actually overwrites the text.

Incentives have changed. The old style wanted to make the reader feel informed about many issues quickly when reading through most of the newspaper, making people want to buy the next newspaper. The new style wants people to go to, and then spend as much time as possible in, every individual article, in order to maximize retention numbers for ad revenue for that article.

Not newspaper articles in general, just this one. It's a total mess.

This one is extreme, but tons of newspaper articles are weird and confusing in the same general way.

Read Matt Levine’s newsletter today, he breaks it down better than anyone.

Link?

I think it's safe to conclude at this point that Axios's editorial style is a failed experiment.

https://newrepublic.com/article/167733/axios-guide-writing-w...

Registered shares are essentially shares offered for sale by the company and certain insiders. Unregistered shares are everything else. Slack was probably selling shares on behalf of non-executive shareholders for unregistered part.

So it sounds like IPOs are basically preventing employees from dumping and it also sounds like other non-employees or registered shares can sell. Directly listing sounds a lot more fair than IPOs.

Fair us what a contract says is fair. (not serious here, just making a point)

Axios’s bullet pointed style has never worked well for me. I’ve never been able to absorb any information from any article of theirs I’ve ever looked at. Total ux abomination.

It's not just you, nor is it newspaper articles, it's that fucking website, sprinkling bullet points everywhere.