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ARTICLE · 21 APRIL 2026

Second Circuit Clarifies Scope Of Liability For Securities Act Claims

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The Second Circuit recently addressed two novel questions in securities law: whether a reverse stock split constitutes a "sale" under Section 12 of the Securities Act, and what level of traceability is required to establish Section 11 liability when connecting securities to allegedly defective registration statements. The court's ruling in Knapp v. Barclays PLC provides significant limitations on issuer liability and establishes important precedents for defendants facing similar Securities Act challenges.

United StatesFinance and Banking
Kevin P. Broughel
Kevin P. Broughel
Zoe Lo
Zoe Lo
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In a matter of first impression, the Second Circuit recently affirmed the district court’s dismissal of Securities Act claims in Knapp v. Barclays PLC, No. 25-1631, 2026 WL 806009 (2d Cir. Mar. 24, 2026). The court concluded that (1) a reverse split did not constitute a “sale” under Section 12 of the Securities Act of 1933, and (2) a supplemental pricing statement was not sufficiently traceable to establish Section 11 liability. This holding cabins the scope of Securities Act liability and provides meaningful defenses for defendants facing similar challenges.

Background

Plaintiffs held exchange-traded notes (ETNs). These ETNs were subsequently condensed through a 4:1 “reverse split” that swapped every four outstanding notes for a single note of equal value. Knapp, 2026 WL 806009 at *1.

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