Section 11 Tracing After Slack
How courts apply Slack Technologies v. Pirani’s requirement that § 11 plaintiffs trace their shares to the challenged registration statement — the Ninth Circuit’s rejection of statistical tracing and burden-shifting on remand, and why de-SPAC investors who receive newly registered shares in the merger exchange can still plead standing.
Section 11 Standing After Slack: Tracing in Direct Listings and De-SPACs
The Supreme Court resolved the direct-listing question against plaintiffs: "Section 11 of the 1933 Act requires a plaintiff to plead and prove that he purchased securities registered under a materially misleading registration statement." Reading "such security" in context, "the law speaks to a security registered under the particular registration statement alleged to contain a falsehood or misleading omission." The Court refused the but-for theory — that "but for the existence of Slack’s registration statement for the registered shares, its unregistered shares would not have been eligible for sale to the public" — finding instead "various contextual clues . . . suggesting that liability runs with registered shares alone," including § 11(e)’s damages cap, which "ties the maximum available recovery to the value of the registered shares alone" Slack Technologies, LLC v. Pirani, 598 U.S. 759 (U.S. 2023).
On remand, the Ninth Circuit ordered the complaint dismissed with prejudice — and closed the remaining escape hatches. Fiyyaz Pirani v. Slack Technologies, Inc., et al, No. 20-16419 (9th Cir. Feb 10, 2025) held that "the theory of statistical tracing is contrary to our precedent": under Century Aluminum, aftermarket purchasers must "trace the chain of title for their shares back to the secondary offering," and a high probability of holding some registered shares is not a chain of title. Burden-shifting fared no better — "traceability is an element of a section 11 claim," so "the burden of persuasion lies where it usually falls, upon the party seeking relief." The panel then extended the rule: "section 12(a)(2) also requires tracing a plaintiff’s shares to an allegedly false or misleading prospectus," and absent an obligation to distribute one, "a securities transaction cannot reasonably be deemed to have occurred ‘by means of a prospectus.’"
De-SPAC plaintiffs can still thread the needle when the deal structure cooperates. Efrat Investments LLC v. Hub Cyber Security Ltd., No. 1:23-cv-05764 (S.D.N.Y. Mar 20, 2025) sustained § 11 claims arising from a de-SPAC merger: while "a plaintiff must be able to trace their shares to an allegedly misleading registration statement," at the pleading stage "[p]laintiffs need only assert that they purchased shares issued pursuant to, or traceable to the public offerings," and "[t]hese general allegations of traceability suffice at this stage." The structural fact that saved the claims: "there was only one offering of Hub shares, issued under one registration statement," which itself provided that SPAC holders "would receive newly registered Hub securities" in the exchange. The court also held that "nothing in the statute itself precludes de-SPAC mergers from giving rise to section 12(a)(2) liability" — the share exchange is a "purchase" because "when an investor parts with one security in exchange for another, he or she is giving up value in exchange for the security to be acquired."
Tracing after Slack is now a deal-structure question asked at the pleading stage. Direct listings and de-SPACs that leave registered shares commingled with unregistered or earlier-registered shares carry a built-in standing defense that statistics and burden-shifting cannot cure — while a merger exchange that issues all shares under a single registration statement remains cleanly traceable. Both sides should map which registration statement each share pool came from before briefing a word of falsity.