Business Insider: A new twist on direct listings could trigger more big lawsuits against buzzy startups over valuations, lawyers say

Eversheds Sutherland Partner Cynthia Krus is quoted in this Business Insider article on the New York Stock Exchange's recent proposal to allow companies to raise capital through a direct listing, which was greenlighted by the Securities and Exchange Commission (SEC). The proposal was then put on hold after the industry group Council of Institutional Investors (CII) filed a notice that it would petition for a review of the proposal. 

Cynthia explained that a major difference from IPOs is that direct listings cut out the underwriters, typically banks, who review and verify the financial information in the offering documents. This information is crucial because it informs price discovery — the company's valuation and price of shares.

"The current SEC rules are somewhat unclear and clunky at this point," she said, adding that "the rules of the road are not well set" with regard to verifying statements made by the company.

In response to critics' arguments, the NYSE said in a letter to the regulator in March 2020 that there are other "gatekeepers," including senior managers, directors, and accountants, who would have "the same economic incentive as underwriters to participate in the diligence process in order to avoid securities law liability."

She commented that this would only really work with certain, more established companies with a proven track record who would have the "wherewithal" to substantiate their statements. She pointed to Spotify, which went public via a direct listing in 2018 but did not raise capital.
 
"Whereas if you're a fledgling company and you're a startup, and you've just got one idea and it hasn't been marketed, those are the kinds of companies I don't know whether they should be able to access a direct listing. I think it's questionable," she said of direct listings as a whole.