Securities Act of 1933

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The SEC suffered a significant loss last week in its ongoing legal battle with Ripple over the XRP digital token. While the District Court held that Ripple’s initial sales of XRP to institutional investors constituted the sale of unregistered securities, it was a Pyrrhic victory as the court held that all other ways in which Ripple sold or distributed XRP did not involve the sale of unregistered securities. In particular, the court held that Ripple’s program to sell XRP to public buyers on digital asset exchanges, as well as its distribution of XRP as compensation to employees and third parties, did not constitute the offer or sale of securities. The court also rejected the SEC’s arguments that Ripple used the institutional buyers as underwriters to sell XRP to the public. The opinion, if followed by other courts in pending litigation with the SEC, could have a far-reaching impact on the cryptocurrency markets, especially with respect to secondary market crypto trades on digital asset exchanges.               

The U.S. Supreme Court held that purchasers of shares sold to the public through a direct listing cannot sue under Section 11 of the Securities Act of 1933 unless they can trace their shares to an allegedly defective registration statement. The short, unanimous decision in Slack Technologies, Inc. v. Pirani (June 1, 2023) appears likely to increase the difficulty of pleading § 11 claims arising from direct listings, thereby requiring dissatisfied purchasers to resort to the Securities Exchange Act of 1934, which imposes stricter standards for liability. The Court declined to comment on Securities Act § 12(a)(2)’s requirements, leaving the issue for the Ninth Circuit on remand.

The Court of Appeals for the Ninth Circuit held today that social media and other mass communications concerning securities can constitute solicitations potentially creating statutory-seller liability under § 12(a)(2) of the Securities Act of 1933.  The decision in Pino v. Cardone Capital, LLC (9th Cir. Dec. 21, 2022) joins a…

This week, our corporate colleagues published a handy guide to the SEC’s new proposed rules on SPACs. Of particular note to securities watchers should be potential increases in litigation stemming from changes to the definition of “blank check company” for the Private Securities Litigation Reform Act of 1995 (the “PSLRA”).…

The Delaware Supreme Court ruled today that Delaware corporations can adopt charter provisions requiring that actions under the federal Securities Act of 1933 be filed in a federal court. The decision in Salzberg v. Sciabacucchi gives Delaware corporations a way to avoid state-court or multi-forum litigation of Securities Act claims by channeling all such cases into the federal system, where they can be managed more effectively – and where they are subject to the more structured and stringent procedural standards mandated by federal law.

Delaware corporations might want to consider adopting federal-forum charter provisions to address the treatment of potential Securities Act claims.

On March 20, 2018, the Supreme Court ruled that the 1998 amendments to the federal securities laws did not strip state courts of jurisdiction over class actions alleging violations of only the Securities Act of 1933. The Court further held that those amendments do not empower defendants to remove those…