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...
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.)
From a lesser writer, this would be disqualifying! Somehow I find myself enjoying it.
I love Money Stuff but hate reading for pleasure on an LCD display?
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?
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.
Does this mean that it's possible that the total number of shares people own doesn't add up exactly to the number issued?
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
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?
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_...
Bonds are also typically fungible in the same way these days (including typically being held by a clearing house if they are traded).
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.
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.
I guess maybe this case leaves that open?
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.
India and Australia you own the share and you still have cheap and fast brokerage accounts.
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.
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.