Marc S. Kirschner, Solely in His Capacity as Trustee of the Millennium Lender Claim Trust v. JPMorgan Chase Bank, N.A., et al.

The securities laws define “security” to include “any note.” 15 U.S.C. §§ 77b(a)(1), 78c(a)(10). In Reves v. Ernst & Young, 494 U.S. 56 (1990), this Court held that that definition “should not be interpreted to mean literally ‘any note,’ but must be understood against the backdrop of what Congress was attempting to accomplish.” Id. at

1. Reves directs courts to “presum[e] that every note is a security,” but the presumption may be overcome if a note bears a “strong resemblance” to a category of notes traditionally considered not to be securities. Id. at 65-67. This case concerns whether syndicated loan notes are “securities.” Syndicated loans are a $3 trillion industry. In a syndicated loan, a bank provides a massive loan to a company and then “syndicates” the notes to hundreds of mutual funds, pension funds, and other investors. Those notes bear no resemblance to traditional commercial bank loans. They trade on secondary markets with standardized terms and CUSIP numbers, just like stocks and bonds. They are widely acknowledged to function as a substitute for high-yield “junk” bonds. The Second Circuit nonetheless held that, under Reves, the notes were not securities. The questions presented are:

2. Whether notes issued as part of a syndicated loan are “securities” under the securities laws.

3. Whether the Court should revisit the Reves standard and replace it with one better grounded in the statutory text. (i)