Second Circuit Curtails Securities Act Claims, Holding That Reverse Split Was Not a “Sale” and Post-Split Notes Could Not Be Traced

The Second Circuit Court of Appeals ruled that Barclays PLC’s mandatory 4:1 reverse split of exchange-traded notes (ETNs) did not constitute a “sale” under Section 12(a)(1) of the Securities Act, as it did not fundamentally change the investment’s nature and investors had no choice. The court also held that investors failed the tracing requirement for a Section 11 claim, reinforcing limits on private Securities Act claims, especially for mechanical corporate actions. This decision provides clarity for issuers but also emphasizes the ongoing importance of robust registration compliance.