August 26, 2026
The SpaceX IPO in mid-June was historic— and not merely for its scale. The offering also departed from conventional practices for going public in a variety of ways that meaningfully affect the rights of minority shareholders.
This article examines one such departure: the erosion of traditional lockup protections that have become critical to investors’ ability to pursue securities claims under Section 11 of the Securities Act of 1933.
Section 11 was designed by Congress to ensure truthful public offerings, such as an initial public offering (IPO). The law imposes a stringent standard of liability on the parties who play a direct role in a registered offering, including issuers, their directors, and their underwriters.
Traditionally, underwriters require that companies going public agree to a lockup period, usually 180 days after the IPO, during which pre-IPO shareholders—such as employees, executives, and early investors—are prohibited from selling their shares. Lockups serve multiple purposes, including stock price stability, signaling confidence, and deterrence of insider trading. But in recent years, lockups have also emerged as a critical safeguard for preserving claims under Section 11 of the Securities Act.
The importance of lockups to Section 11 claims became more acute in June 2023, when the Supreme Court decided Slack Technologies v. Pirani. That decision reaffirmed that Section 11 plaintiffs must “trace” their shares to the allegedly defective registration statement. For investors who purchased directly from underwriters in the initial distribution, tracing is straightforward. For secondary-market purchasers, though, it is far more difficult. Once pre-IPO shareholders sell their unregistered shares into the open market, those shares commingle with the registered shares issued pursuant to the registration statement. At that point, it is hard (and, many argue, nearly impossible) for a secondary-market purchaser to prove that the shares they acquired are traceable to the defective registration statement, effectively precluding recovery under Section 11.
Lockups have been an essential bulwark against this traceability problem. During the lockup period, pre-IPO shareholders cannot sell their shares, so the only shares available in the secondary market are the registered shares from the IPO that are necessarily traceable to the registration statement. Investors who purchase during this window can typically establish traceability with relative ease. Once the lockup expires and unregistered shares enter the market, traceability—and with it, the prospect of Section 11 recovery—becomes far more uncertain. But, again, the traditional 180-day lockup provided some measure of protection for secondary-market purchasers.
In recent years, however, companies have increasingly experimented with alternative lockup structures that shorten or all-but eliminate this protective window. These variations, employed predominantly by companies in the technology sector, include blackout pull-forwards, staggered releases, performance-based early releases, and day-one releases.
- Blackout pull-forwards. Companies typically impose quarterly trading blackouts before earnings announcements to prevent insider trading. When a lockup would otherwise expire during such a blackout, some companies—including Snap, Peloton, Lyft, and Pinterest—have permitted insiders to sell earlier, before the blackout begins. When blackout pull-forward provisions apply, the lockup period can thus effectively expire earlier for eligible shareholders.
- Staggered releases. To avoid one large wave of sales following a single lockup expiration, which commonly puts downward pressure on the company’s stock price, some companies have implemented staggered releases designed to spread out insider sales at various dates in the first six months after the IPO. Snowflake, for example, allowed 25% of locked-up shares to be sold after 91 days and Doordash permitted 40% after the same period.
- Performance-based early releases. One variant of the staggered approach, these provisions tie early sales to stock price thresholds. Datadog and Instacart, among others, have permitted insiders to sell a specified percentage of shares once the stock reaches a predetermined price.
- Day-one releases. Some companies, such Allbirds and Airbnb, have allowed non-executive employees to sell a portion of their shares even on the first trading day. Securities law restrictions generally prevent executive officers, directors, and affiliates from selling in the first 90 days, so these provisions typically apply only to non-executive employees
Two of this year’s most prominent technology IPOs—Cerebras and SpaceX—are only the latest examples of this trend. Cerebras, which went public in May, permitted non-executive employees to sell 7.5% of their shares on day one and, if the stock closed by more than 33% above the IPO price on that day, an additional 7.5% on day two. Additional tranches were permitted following first-quarter 2025 earnings (announced in late June) and at intervals through October.
SpaceX, for its part, permits up to 20% of eligible shares to be sold after the company reports its first quarterly results as a public company, with an additional 10% available if the stock trades at least 30% above the IPO price for five of ten consecutive trading days before the earnings release. Quarterly results are expected by early August—roughly 60 days after the IPO. Additional staggered releases follow at 10-to-20-day intervals until the full lockup expires on December 8, 2026.
From the companies’ perspectives, these structures have appeal. Staggered releases may smooth out selling pressure on the stock. For companies that have relied heavily on equity compensation, shorter lockups can serve to reward and retain talent in a highly competitive environment. These are legitimate corporate objectives. But for other investors, these shorter lockups shrink, if not eliminate, the window during which secondary-market purchasers can establish traceability—and with it, their ability to recover under Section 11 if material misstatements or omissions are later revealed.
Investors should expect this trend to continue. That has two major implications. First, when deciding whether to buy shares in a newly public company, investors should pay close attention to the terms of the lockup agreement, which may impact their rights to recover under Section 11. Second, continued erosion in the traditional 180-day agreement illustrates that lockups cannot be relied upon to solve the traceability problem. Investors will increasingly need to look to other solutions, such as developing technological innovations and evidentiary methods or new regulatory and congressional action.