March 28, 2023 - As we advised last week, after hearing oral argument in Kirschner v. JPM, the case that is considering whether syndicated Term Loan Bs are securities, a three-judge panel of the US Court of Appeals for the Second Circuit asked the SEC to weigh in with “any views it wishes to share” on whether the loans in the Kirschner case are securities under Reves v. Ernst & Young, the seminal US Supreme Court case on that issue. The Court set a deadline of April 13th. This week, the SEC filed an unopposed motion requesting an extension of time until June 27, 2023 to file a response to the Court’s request (and the parties to the litigation followed with a joint motion asking for 30 days, rather than the week the Court offered, to respond to the SEC’s response). Following is the relevant text of the SEC’s motion and a brief assessment of what it may mean:
“As the Court’s order notes, this is an important issue and the Commission has an interest in ensuring that its views on this issue are considered by the Court in its resolution of this appeal. However, it is not possible for the Commission to prepare a response by April 13. Commission counsel have met with Malcolm Stewart, Deputy Solicitor General, who agrees that this issue warrants consultation with other federal agencies. Commission counsel will also need to consult with counsel for the parties, as well as internally, before recommending a response. And the Commission itself needs to consider the recommended response.”
What does this mean? The SEC’s motion makes a few things clear. First, the SEC confirms that they intend to weigh in (not that there was much doubt about that) and seems to be taking their response very seriously. Second, prior to responding, the SEC will consult with the other interested federal agencies (which would include, presumably, the Federal Reserve, the FDIC and the OCC) , counsel for the litigation parties, and their own staff. Third, the Commission itself will “need to consider the recommended response.” Given the stakes of this litigation and its potential impact on the syndicated loan market (as highlighted in our previous post), it is reassuring that the SEC is taking the time and engaging other key stakeholders. We will continue to monitor and report on this matter as appropriate.