Whether syndicated loans constitute 'securities' under the Reves 'family resemblance' test and the Securities Act of 1933

No question identified. : currently due November 22, 2023. Under this Court’s Rule 13.5, this application is being filed at least 10 days before that deadline. This Court has jurisdiction under 28 U.S.C. §1254(1). A copy of the court of appeals’ opinion is attached as Exhibit 1. There is good cause for the extension. The Trustee’s counsel of record at MoloLamken LLP did not represent the Trustee in the court of appeals and was engaged to represent the Trustee in this Court only after the court of appeals’ decision. The petition raises important and complex questions that have required extensive legal and factual research. Finally, counsel have been heavily engaged with the press of other matters and require additional time to prepare the petition. 1. This case presents the important question whether syndicated loans are “securities” within the meaning of the securities laws, and what legal standard governs that determination. The Securities Act of 1933 defines “security” broadly to include a long list of instruments, such as “any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement,” among many others. 15 U.S.C. §77b(a)(1). The Securities Exchange Act of 1934 contains a similar definition. 15 U.S.C. §78c(a)(10). Many state blue sky laws have similar language. See, e.g., Cal. Corp. Code § 25019; Mass. Gen. Laws 110A §401(k). Although those definitions explicitly cover “any note,” this Court has allowed courts to depart from that literal definition. In Reves v. Ernst & Young, 494 U.S. 56 (1990), the Court adopted the so-called “family resemblance” test. Id. at 63-67. Under that test, courts must presume that all “notes” are securities. But a party can rebut that presumption by showing that a particular note resembles a category of notes traditionally thought not to be securities—for example, “the note delivered in consumer financing,” “the note secured by a mortgage on a home,” or “notes evidencing loans by commercial banks for current operations.” Jd. at 65. Under Reves, courts consider four factors: “the motivations that would prompt a reasonable seller and buyer” to enter into the transaction, “the ‘plan of distribution’ of the instrument,” the “reasonable expectations of the investing public,” and “whether some factor such as the existence of another regulatory scheme significantly reduces the risk of the instrument.” Id. at 66-67. This case concerns a category of notes known as “syndicated loans.” Unlike a traditional loan, syndicated loans do not involve a single bank or a small group of banks lending funds to a borrower. Instead, arranging banks split up a loan and “syndicate” the pieces to large groups of investors that routinely number in the hundreds. Those investors typically are not commercial banks but rather investment vehicles such as collateralized loan obligations (“CLOs”), investment banks, hedge funds, pension funds, and mutual funds. After the initial distribution, syndicated loans typically trade on structured secondary markets. 2. This case involves syndicated loans issued by Millennium Health LLC, Inc., a California-based drug testing company. Kirschner v. JP Morgan Chase Bank, N.A., 79 F 4th 290, 296 (2d Cir. 2023). Millennium issued over $1.775 billion in syndicated loans to more than 400 investors. Jd. at 296, 307 n.94. Millennium used the proceeds primarily to pay a $1.27 billion dividend to its shareholders and to pay off an outstanding credit facility with the arranging banks; none of the proceeds were used for commercial operations. Jd. at 296. The notes immediately began trading on secondary markets. Id. at 299. About a year later, Millennium paid the government $256 million to settle claims over improper billing practices. 79 F.4th at 300. Millennium filed for bankruptcy soon after. Jd. Marc Kirschner was appointed Trustee to pursue claims on behalf of investors who p