In the ruling decided by the United States Second Circuit Court of Appeals on Aug. 24 in Kirschner v. JP Morgan, the court upheld the District Court’s decision stating that the origination and distribution of $1.8B in syndicated bank loans cannot be categorized as securities transactions regardless of their resale to institutional buyers on the secondary market. 

The court distinguished two separate issues at hand. The first was determining the subject matter jurisdiction of the United States District Court for the Southern District of New York according to the Edge Act, 12 U.S.C. § 632. The second issue was determining if the plaintiff’s state-law securities claims were wrongly dismissed by the District Court “on the ground that he failed to plausibly suggest that notes issued as part of the syndicated loan transaction are securities under Reves v. Ernst & Young, 494 U.S. 56 (1990).”

The court determined the District Court did have jurisdiction under the Edge Act, and that the state-law securities claims were not wrongly dismissed under Reves v. Ernst & Young.

This case will likely have implications beyond notes, both for the private equity industry and the crypto sector such as in the lending area.