On August 24, 2023, the Second Circuit Court of Appeals issued its much-anticipated decision in Kirschner v. JP Morgan Chase Bank, holding that the syndicate term loans at issue were not securities. As noted in our earlier blog post, the SEC declined the court’s request to file an
U.S. Supreme Court
Supreme Court Requires Traceability for Securities Act Claims Arising from Direct Listings
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.
Supreme Court Holds that Constitutional Challenges to Administrative Agencies’ Structure Can Be Brought in District Court
The Supreme Court held today that constitutional challenges to administrative agencies’ structure can be brought in federal district court and need not be raised through an administrative proceeding with subsequent appellate review. The decision in Axon Enterprise, Inc. v. Federal Trade Commission (U.S. Apr. 14, 2023) – which involved challenges to two federal agencies’ use of Administrative Law Judges (“ALJs”) for enforcement proceedings – considered only the issue of where such challenges can be brought. The Court did not address substantive questions about whether the ALJ process or the agency structure itself is constitutional – hot topics that could come before the Court in other matters.
Disgorgement Continues at the SEC
On October 12, 2021, the Fifth Circuit Court of Appeals upheld a disgorgement order issued by the SEC, in—according to the opinion— the first appellate ruling on the topic since the Supreme Court’s 2020 decision in Liu v. SEC.
Second Circuit Reaffirms that Federal Securities Laws Do Not Apply to Predominantly Foreign Transactions
The U.S. Court of Appeals for the Second Circuit reaffirmed yesterday that the federal securities laws do not apply to “predominantly foreign” securities transactions even if those transactions might have taken place in the United States. The ruling in Cavello Bay Reinsurance Ltd. v. Shubin Stein (No. 20-1371) reinforces the Second Circuit’s prior decisions concerning the scope of the transaction-based test that the U.S. Supreme Court announced in Morrison v. National Australia Bank in an effort to curb the extraterritorial application of the federal securities laws.
Supreme Court to Consider Securities Class Action Issue
On December 11, 2020, the United States Supreme Court granted certiorari in a shareholder securities litigation against Goldman Sachs.[1] On appeal, Goldman argues that federal securities law permits issuer defendants in purported class actions to rebut the presumption of reliance where the alleged misstatements are of such a generic…
California Federal Court Holds that U.S. Securities Laws Apply to Unsponsored, Unlisted ADRs
The U.S. District Court for the Central District of California held on January 28, 2020 that the federal securities laws apply to U.S. transactions in unlisted, unsponsored American Depositary Receipts (“ADRs”) for a foreign issuer’s shares. The decision in Stoyas v. Toshiba Corporation also held that principles of international comity…
Supreme Court Hearing Raises Questions About Private Rights of Action Under § 14 of Securities Exchange
One of the more intriguing rulings of this Supreme Court Term is the Court’s one-sentence order yesterday dismissing as improvidently granted the writ of certiorari issued in Emulex Corp. v. Varjabedian (No. 18-459). The Court had taken the case to review a Circuit split on the liability standard under § 14(e) of the Securities Exchange Act, which regulates tender offers. Along the way, however, the petitioner argued that a private right of action does not exist at all under § 14(e) – an issue that had not been raised in the lower courts. That issue occupied a large portion of the oral argument held on April 15, 2019, with the parties and the Justices exploring whether the Court should entertain the previously unraised issue and, if so, what the outcome should be.