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A few months ago, Dave blogged about Kirschner v. JPMorgan Chase Bank, N.A., a potentially significant case pending before the Second Circuit which presented the issue of whether syndicated loans were “securities” for purposes of the Securities Act. The SDNY previously held that they were not, and last week, the Second Circuit affirmed that decision. This excerpt from Debevoise’s memo on the case said that the Supreme Court’s decision in Reves v. Ernst & Young featured prominently in the Court’s reasoning:

In affirming the district court’s decision, the Second Circuit’s analysis focused on the Reves test. The court found that three factors—the plan of distribution, the reasonable expectations of the public and the existence of other risk-reducing factors—favored a conclusion that the term loan should not be classified as a security. The court found that only one factor, the investment-focused motivation of the sophisticated parties to whom the term loan was syndicated, favored classifying the term loan as a security. However, the court determined this motivation was outweighed by the other three Reves factor.

This is a case that attracted a lot of attention because as Dave said in his earlier blog, concluding that syndicated loans involved the issuance of securities could’ve really upended the $2.5 trillion market for those loans. A coalition of business groups that included the U.S. Chamber of Commerce and SIFMA filed an amicus brief in support of the position that syndicated loans weren’t securities.  Interestingly, the SEC chose to sit this one out. In July, the agency said that it would not file an amicus brief in the case.

– John Jenkins