Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse highlight several developments from recent litigation in their latest report, Securities Class Action Filings—2025 Midyear Assessment.
1933 Act Claims and Tracing: Slack Technologies LLC et al. v. Pirani and Cupat v. Palantir,
In June 2023, the U.S. Supreme Court held in Slack Technologies LLC et al. v. Pirani that Section 11 of the 1933 Act “requires a plaintiff to plead and prove that he purchased shares traceable to the allegedly defective registration statement.”
The Court remanded the case to the Ninth Circuit to determine “[w]hether Mr. Pirani’s pleadings can satisfy § 11(a) as properly construed.” The Court also remanded plaintiff’s Section 12 claim, stating: “Nor do we endorse the Ninth Circuit’s apparent belief that § 11 and § 12 necessarily travel together, but instead caution that the two provisions contain distinct language that warrants careful consideration.”
On remand, Mr. Pirani argued that he could establish tracing through a statistical analysis, and alternatively urged the Ninth Circuit to “create a regime of burden-shifting under which Slack would have the burden to prove that Pirani’s shares were not registered.” The court declined, ruling that “the theory of statistical tracing is contrary to our own precedent,” and rejected plaintiff’s burden-shifting theory because there was no reason to conclude Congress intended such a shift.
As to Section 12, while the Ninth Circuit acknowledged the Supreme Court’s caution that Sections 11 and 12 “do not ‘necessarily travel together,’” the court concluded that “section 12(a)(2) also requires tracing a plaintiff’s shares to an allegedly false or misleading prospectus.” The Ninth Circuit directed the district court to dismiss the complaint against Slack.
Mr. Pirani has again petitioned the Supreme Court to weigh in on the case, arguing that Section 12 does not require tracing; and that because the tracing difficulties resulted entirely from Slack’s decision to register only some of the shares in its offering, and because Slack had better access to much of the information needed for tracing, the court could adopt a burden-shifting regime.
In the second matter, Cupat v. Palantir Technologies Inc., plaintiffs alleged that the company exaggerated its growth projections while benefitting from growth due to the COVID-19 pandemic, which it knew would come to an end. Citing Slack, the district court rejected plaintiff’s argument that she could establish traceability through a statistical analysis and dismissed the complaint. Plaintiff has filed a notice of appeal with the Tenth Circuit.
Alleged Misstatement Regarding Compliance With Professional Auditing Standards: New England Carpenters Guaranteed Annuity and Pension Funds et al. v. BDO USA LLP,
In New England Carpenters Guaranteed Annuity and Pension Funds et al. v. BDO USA LLP, plaintiff alleged that BDO misled investors by stating that its financial statements had been audited in accordance with PCAOB accounting standards. After the district court dismissed plaintiff’s complaint for lack of materiality, plaintiff appealed to the Second Circuit.
Initially, the Second Circuit affirmed the district court’s decision, holding that the dismissal was warranted because plaintiff failed to allege any link between the alleged misstatements and alleged material errors contained in the underlying financials. However, after a rehearing, the Second Circuit reversed course and vacated the district court’s ruling, holding that plaintiff had stated a claim under Section 11 because it was not required to allege a link between the alleged misstatements and the underlying financials.
BDO is seeking to appeal the decision to the U.S. Supreme Court, arguing that “the Second Circuit adopted an unprecedented per se rule that an auditor’s statement that it complied with professional auditing standards is always material . . . [The holding] creates a dangerous precedent that provides unduly expansive liability against accounting firms in the Second Circuit.”
The views expressed herein are solely those of the authors and do not necessarily represent the views of Cornerstone Research.
