Carlyle Taps a Former Goldman Exec to Fill Leadership Void

February 06, 2023
Business

In a new amicus brief, the former S.E.C. chairman Jay Clayton and the former commissioner Joseph Grundfest say that the plaintiff’s argument threatens to vastly expand legal risk for businesses. “There are already many avenues of liability,” Mr. Clayton told DealBook. “This makes up a whole new one, and adds an imbalance.”

The case is about standing: whether a shareholder lawsuit against Slack can even proceed. Last year, a lower court ruled that the shareholder, who was unregistered, had the right to sue Slack, saying he was misled by statements made in the company’s listing. Slack appealed to the Supreme Court, arguing that the provision the plaintiff used to sue was limited only to registered shares. The company, and its supporters, including the U.S. Chamber of Commerce, say an expansive interpretation by the courts would inject confusion into the public markets, and chill listings.

Those with registered shares are afforded extra protections, and have an easier path to sue. That registered versus unregistered distinction matters, Mr. Grundfest said. Otherwise, companies could face a far larger pool of litigants seeking damages, he said, which is not what Congress intended for securities law. “It’s important in our constitutional structure that each branch of government respects its role and stays in its lane,” he told DealBook.

Fiyyaz Pirani, the lead plaintiff aiming to sue Slack, is an entrepreneur turned trader. His lawyers contend that the shareholder registration requirement creates a loophole protecting listed companies that engage in bad behavior. If shareholders are powerless to challenge them in court it could lead to market harm, they say.

The justices will hear arguments in April; a decision is expected in June.