Seward & Kissel Attorneys Prevail on Summary Judgement Motion Against SEC in Southern District of New York; Significant Ruling Involves Issue of First Impression

March 27, 2017

New York, NY—On March 27, 2017, Jack Yoskowitz, Ross Hooper, and Laura Miller of Seward & Kissel LLP, obtained summary judgment for their clients, Revelation Capital Management, Ltd. and Christopher Kuchanny, in a case brought by the Securities and Exchange Commission (SEC) alleging that the defendants, a Bermudian investment vehicle and English national, had violated Rule 105 of Regulation M by participating in a Canadian offering by a Canadian company after short-selling stock in that company that traded on the NYSE. Rule 105 prohibits a person from purchasing securities in an offering where that person has sold short the security that is the subject of the offering within a certain restricted period of time.

In the decision, Judge Valerie Caproni of the Southern District of New York analyzed defendants’ participation in the foreign offering under the extraterritoriality framework set forth in the Supreme Court’s decision in Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010). The Court found that Rule 105 did not apply to defendants’ participation in the offering because defendants did not incur irrevocable liability for the purchase of shares in the offering, and title did not pass for that purchase, within the United States. In so holding, Judge Caproni rejected the SEC’s argument that the defendants’ prior short sales of shares listed in the United States were sufficient to satisfy Morrison, and found that defendants’ activities relative to the offering itself were “entirely foreign.”

Notably, the application of Morrison’s extraterritoriality analysis to Rule 105 was a question of first impression.


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