In September 2021, the Ninth Circuit ruled in Pirani v. Slack Technologies, Inc. (Slack) that Section 11 liability applies to direct listing shares. This decision came under scrutiny because it challenged previous decisions on Section 11, namely with respect to liability. While the Slack ruling dealt mainly with Section 11 liability requirements, we discuss four issues surrounding Section 11 damages arising from direct listings.
Direct listings are a relatively new method for companies to go public. Whereas in a traditional initial public offering (IPO) shares are sold to investors through an underwriter (i.e., the primary market), in a direct listing, shares are sold directly into secondary markets, such as an exchange like the NYSE or Nasdaq. Direct listings offer some advantages over a traditional IPO. One such benefit is the ability to provide forward-looking guidance to investors before trading (an advantage also held by companies that go public via merger with a special purpose acquisition corporation, or SPAC). Direct listings also provide savings to selling shareholders on underwriting fees (typically 3.5% to 7% in a traditional IPO). Finally, direct listings often do not involve share lockup agreements that bind insiders and other pre-listing investors. Such lockup agreements are a common feature of traditional IPOs.
Although direct listings can be used to raise new capital, typically no new capital is raised at the time of the initial share listing. As a result, direct listings are considered most suitable for more established, profitable firms that have less need for new capital. Indeed, all 12 of the direct listing companies we analyzed had either positive operating cash flow or significant cash and equivalents on hand as of the quarter ended before their direct listings.
 13 F.4th 940 (9th Cir. 2021).
 PwC reviewed the public filings of 829 companies and found that the average underwriting fee ranged from 3.5% to 7.0%, with an inverse relationship between deal value and underwriting fee. “Considering an IPO? First, understand the costs,” pwc, https://www.pwc.com/us/en/services/deals/library/cost-of-an-ipo.html, accessed May 1, 2022.
 In the 12 direct listings between 2018 and 2021, none of the firms raised new capital at the time of the initial listing, though some later made secondary equity offerings.