5 ms·

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

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-bots-are-coming-to-finance#xj4y7vzkg https://www.bloomberg.com/opinion/articles/2023-06-01/ai-bot...

puzzledobserver 3y ago
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?
- zx8080 3y ago
  What's the problem with Section 10?
  - Majromax 3y ago
    > 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.
- RC_ITR 3y ago
  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.
  - detourdog 3y ago
    I imagine this changed when paper certificates went away.
- throwaway09223 3y ago
  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.
  - anonymousiam 3y ago
    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/ https://www.forbes.com/advisor/investing/stock-certificate/
  - sumedh 3y ago
    > Nominee brokerage accounts are cheap and fast. India and Australia you own the share and you still have cheap and fast brokerage accounts.
- MacsHeadroom 3y ago
  > 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.
  - deleted 3y ago
    [deleted]
  - crazygringo 3y ago
    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?
    - koolba 3y ago
      > 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_Corporation https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_...
      - tomatocracy 3y ago
- usr1106 3y ago
  > 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.
  - TimPC 3y ago
    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.
    - brookst 3y ago
      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?
    - usr1106 3y ago
      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.
jholman 3y ago
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.)
- DavidPeiffer 3y ago
  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.
  - quesera 3y ago
    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.
    - brookst 3y ago
      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.
  - djbusby 3y ago
    The magic combination of skill, experience and good tools.
jxramos 3y ago
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?

puzzledobserver 3y ago

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?

zx8080 3y ago
What's the problem with Section 10?
- Majromax 3y ago
  > 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.
RC_ITR 3y ago
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.
- detourdog 3y ago
  I imagine this changed when paper certificates went away.
throwaway09223 3y ago
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.
- anonymousiam 3y ago
  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/ https://www.forbes.com/advisor/investing/stock-certificate/
- sumedh 3y ago
  > Nominee brokerage accounts are cheap and fast. India and Australia you own the share and you still have cheap and fast brokerage accounts.
MacsHeadroom 3y ago
> 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.
- deleted 3y ago
  [deleted]
- crazygringo 3y ago
  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?
  - koolba 3y ago
    > 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_Corporation https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_...
    - tomatocracy 3y ago
usr1106 3y ago
> 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.
- TimPC 3y ago
  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.
  - brookst 3y ago
    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?
  - usr1106 3y ago
    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.

jholman 3y ago

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.)

DavidPeiffer 3y ago
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.
- quesera 3y ago
  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.
  - brookst 3y ago
    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.
- djbusby 3y ago
  The magic combination of skill, experience and good tools.

jxramos 3y ago

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?