The U.S. Court of Appeals for the Second Circuit's March 24 decision in Knapp v. Barclays PLC is an important win for issuers, underwriters and other participants in the structured-products market.
In a precedential opinion addressing issues the court described as matters of first impression, the panel held that Barclays' mandatory four-to-one reverse split of certain exchange-traded notes, or ETNs, did not constitute a "sale" under Section 12(a)(1) of the Securities Act, and that investors also failed to satisfy Section 11's tracing requirement. That tracing requirement — firmly established by the U.S. Supreme Court's 2023 decision in Slack Technologies LLC v. Pirani — was rigorously applied in Knapp to dismiss the Section 11 claim.
The ruling reinforces meaningful limits on private Securities Act claims, particularly where plaintiffs attempt to recharacterize mechanical corporate actions as new securities transactions.
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