Second Circuit Curtails Securities Act Claims, Holding That Reverse Split Was Not A "Sale" And Post-Split Notes Could Not Be Traced

In Knapp v. Barclays PLC, No. 25-1631, 2026 WL 806009 (2d Cir. Mar. 24, 2026), the United States Court of Appeals for the Second Circuit handed down an important win for issuers, underwriters and other participants in the structured-products market. In a precedential opinion addressing issues the Court described as matters of first impression, the three-judge panel held that Barclays PLC’s (“Barclays”) mandatory 4:1 reverse split of certain exchange-traded notes (“ETNs”) did not constitute a “sale” under Section 12(a)(1) of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. § 77l(a)(1), and that investors also failed to satisfy tracing requirement for a claim under Section 11 of the Securities Act, 15 U.S.C. § 77k. The ruling reinforces meaningful limits on private Securities Act claims, particularly where plaintiffs attempt to recharacterize mechanical corporate actions as new securities transactions.