Xeriant, Inc. v. Auctus Fund, LLC

Section 15(a) of the Securities Exchange Act of 1934 (“SEA”) provides that it is unlawful for an unregistered securities dealer “to effect any transactions in . . . any security.” 15 U.S.C. § 78o (a) (emphasis added). Although parties may not bring direct suit to enforce §15(a), the Second Circuit agrees that a violation of §15(a) can serve as the basis for a contract-rescission claim under § 29(b) of the SEA, 15 U.S.C. § 78cc(b). Section 29(b) provides a private right of action to void or rescind every contract “made in violation” or obligating “performance” that violates any provision of the SEA, including § 15(a). Id. Questions Presented: (a) Where a party has attained “unregistered dealer” status at the time of the contract, may that party enter a contract effecting the purchase of a convertible promissory note (a security) without violating § 15(a)? (b) Does the answer to question (a) change in any way if the unregistered dealer purchased the convertible note (a security) in a transaction deemed exempt from registration under Section 4(a) of the Securities Act of 1933? Despite the plain language of § 15(a) and ignoring direct precedent in the Eleventh Circuit, the Second Circuit held: a contract effecting a securities purchase by an unregistered dealer is lawful under §15(a) if it does not obligate the unregistered dealer to “act as a dealer in violation of the [SEA].” Pet. App. 3a.