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I recently blogged about the US District Court for the District of Colorado’s decision in Cupat v. Palantir Technologies, Inc. that dismissed a Section 11 claim arising out of a direct listing after applying the strict tracing requirement from SCOTUS’s decision in Slack Technologies v. Pirani. This Bloomberg article from Fried Frank’s Samuel Groner and Katherine St. Romain points out that there have been conflicting decisions from District Courts on this topic following the Slack decision.

In the September 2024 In re Coinbase Glob., Inc. Sec. Litig. decision, the US District Court for the District of New Jersey refused to dismiss Section 11 claims in a putative class action against cryptocurrency exchange Coinbase, which also went public via a direct listing.

In the [complaint], Plaintiffs allege they “acquired Coinbase common stock pursuant and/or traceable to the Offering Materials.” Additional Plaintiffs specifically allege: they purchased Coinbase stock on April 14, 2021, the first day of Coinbase’s Direct Listing, at prices near the opening price; and 88% of shares outstanding were registered pursuant to the Offering Materials when they purchased the Company’s stock. Lead Plaintiff alleges it purchased the Company’s stock on November 30, 2021, when 74% of the shares outstanding were registered pursuant to the Offering Materials. The Court finds Plaintiffs have plausibly alleged that they purchased shares pursuant and/or traceable to the Offering Materials.

As I shared in April, the Cupat v. Palantir Technologies, Inc. decision from the District of Colorado suggested that “nothing short of” chain-of-title allegations would be sufficient to plead traceability after Slack. Notably, Coinbase has appealed the District Court’s decision to the Third Circuit, “arguing the district court erred in allowing the case to proceed based on ’a possibility that the plaintiff purchased registered shares, not that a plaintiff actually purchased registered shares.’”

– Meredith Ervine