25-1631 Knapp v. Barclays
United States Court of Appeals For the Second Circuit
August Term 2025
Argued: March 16, 2026 Decided: March 24, 2026
No. 25-1631
JEFFREY KNAPP, MARK HOWARTH, JUSTIN REED, DR. RUTH C. MAY, and DR. DONNA E. LEDGERWOOD, on behalf of themselves and all others similarly situated,
Plaintiffs-Appellants,
v.
BARCLAYS PLC, BARCLAYS BANK PLC, ANNA CROSS, STEVEN EWART, NIGEL HIGGINS, HELEN KEELAN, TUSHAR MORZARIA, MARIA RICHTER, JEREMY SCOTT, JAMES E. STALEY, TIM THROSBY, ALEX THURSBY, C.S. VENKATAKRISHNAN, HELENE VAN DORT,
Defendants-Appellees,
DOES 1–12,
Defendants. *
* The Clerk of Court is respectfully directed to amend the official case caption as set forth above. Appeal from the United States District Court for the Southern District of New York No. 23-cv-2583, Lewis J. Liman, Judge.
Before: WALKER, SULLIVAN, and BIANCO, Circuit Judges.
Plaintiffs appeal from a judgment of the United States District Court for the Southern District of New York (Liman, J.) dismissing their claims under the Securities Act of 1933 (the “Securities Act”) against Defendants, a bank holding company, its subsidiary, and its executives (collectively, “Barclays”). Barclays issued complex debt securities called exchange-traded notes (“ETNs”), which it subsequently condensed through a 4:1 “reverse split” that swapped every four outstanding notes for a single note of equal value. Plaintiffs, who held such post- split ETNs (collectively, the “Investors”), assert that Barclays violated section 12 of the Securities Act by selling the ETNs without registering them with the Securities and Exchange Commission (“SEC”) and section 11 by tying the ETNs to a registration statement that included allegedly misleading statements.
The district court dismissed the complaint because it concluded that (i) the reverse split did not constitute a “sale” under the Securities Act – a prerequisite for liability under section 12 – and (ii) the Investors failed to trace the post-split ETNs to a particular registration statement, as required for section 11 liability. On these issues of first impression, we agree with the district court and accordingly AFFIRM the judgment in full.
AFFIRMED.
JONATHAN BRIDGES (Mazin A. Sbaiti, on the brief), Sbaiti & Company PLLC, Dallas, TX, for Plaintiffs- Appellants.
MATTHEW J. PORPORA (Jeffrey T. Scott, Julia A. Malkina, Jacob E. Cohen on the brief), Sullivan & Cromwell, New York, NY, for Defendants-Appellees.
2 PER CURIAM:
Plaintiffs appeal from a judgment of the United States District Court for the
Southern District of New York dismissing their claims under the Securities Act of
1933 (the “Securities Act”) against Defendants, a bank holding company, its
subsidiary, and its executives (collectively, “Barclays”). Barclays issued complex
debt securities called exchange-traded notes (“ETNs”), which it subsequently
condensed through a 4:1 “reverse split” that swapped every four outstanding
notes for a single note of equal value. Plaintiffs, who held such post-split ETNs
(collectively, the “Investors”), assert that Barclays violated section 12 of the
Securities Act by selling the ETNs without registering them with the Securities and
Exchange Commission (“SEC”) and section 11 by tying the ETNs to a registration
statement that included allegedly misleading statements.
The district court dismissed the complaint because it concluded that (i) the
reverse split did not constitute a “sale” under the Securities Act – a prerequisite
for liability under section 12 – and (ii) the Investors failed to trace the post-split
ETNs to a particular registration statement, as required for section 11 liability. On
these issues of first impression, we agree with the district court and accordingly
affirm the judgment in full. I. BACKGROUND
This case relates to Barclays’ use of complex debt instruments called ETNs.
In a nutshell, ETNs are debt securities that derive their value from underlying
indices. Here, Barclays issued certain ETNs – under the ticker “VXX” – that
tracked expected future market volatility and thus enabled “sophisticated
investors to manage daily trading risks.” J. App’x at 247–48. Investors could
(i) hold VXX to maturity and receive a cash payout at that time, id. at 248;
(ii) redeem them in blocks of 25,000 notes at an earlier date, id.; or (iii) trade them
on the New York Stock Exchange via an “efficient” and “highly liquid” secondary
market, id. at 222.
When distributing these ETNs, Barclays relied on its status as a “well-
known seasoned issuer” (“WKSI”), i.e., a proven, trustworthy, and experienced
financial institution. See Securities Offering Reform, Securities Act Release No.
8591, 70 Fed. Reg. 44,721 (Aug. 3, 2005). Unlike normal issuers, WKSIs do not
have to register each new batch of securities with the SEC and obtain the agency’s
approval; instead, they can file “open-ended shelf registration statement[s],” J.
App’x at 162, with “unspecified amounts of . . . securities,” id. at 312. Then,
whenever they want to access capital, they can issue as many securities as they
4 would like, selling them immediately, and “pay[ing] filing fees on a ‘pay-as-you-
go’ basis.” Id.
Barclays lost this ability, however, in 2017, when it gave up its WKSI status
after settling cease-and-desist proceedings brought by the SEC. Id. In the
confusion that followed, Barclays, which was accustomed to the pay-as-you-go
model, inadvertently issued more securities than it had pre-registered with the
SEC. There was thus a period, between July 2019 and October 2021, when
Barclays was issuing unregistered VXX.
During that span – on April 23, 2021 – Barclays “consummated” a “4:1
reverse split for VXX.” Id. at 180. This reverse split meant that Barclays would
“replace” “every four [ETNs] that an investor held . . . with a single new [ETN]
ostensibly worth four times the value.” Id. That exchange conformed to the
terms of the original pricing supplement for VXX, which had warned investors
that Barclays might “[o]n any business day . . . elect to initiate a split . . . or a
reverse split of your ETNs” and described a 4:1 reverse split as an example. Id. at
286–87.
On the same day as the reverse split, Barclays circulated a new pricing
supplement (the “April Supplement”). That supplement disclosed that Barclays
5 had “implemented” the split, id. at 437, and indicated that Barclays might “use this
pricing supplement in the initial sale” of any post-split ETNs that Barclays still
held, id. at 439, and in “market-making transaction[s],” namely, sales to “dealers
[who would] resell such ETNs to the public,” id. at 439, 492.
The Investors subsequently sued Barclays under the Securities Act. They
first alleged that the reverse split violated section 12(a)(1), which prohibits the sale
of unregistered securities. 15 U.S.C. § 77l(a)(1). They then asserted that the split
contravened section 11 – which bans misleading registration statements, 15 U.S.C.
§ 77k – because the split could be “trace[d] to” the April Supplement, and that
supplement incorporated earlier, allegedly inaccurate disclosures. J. App’x at
200.
The district court dismissed both claims. It held first that the section 12
claims failed because the “reverse . . . split did not constitute a sale” under the
Securities Act. Sp. App’x at 20. It then dismissed the section 11 claims because
the Investors had failed to show that “the [ETNs] in question were issued under
. . . [an] allegedly defective registration statement.” Id. at 37. The Investors
timely appealed.
6 II. STANDARD OF REVIEW
We review de novo a district court’s dismissal for failure to state a claim,
“accepting all factual allegations in the complaint as true and drawing all
reasonable inferences in favor of the plaintiff.” In re Nine W. LBO Sec. Litig., 87
F.4th 130, 142 (2d Cir. 2023). “To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to state a claim to relief that is
plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation
marks omitted). A claim is plausible if the plaintiff “pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for
the misconduct alleged” and establishes “more than a sheer possibility that a
defendant has acted unlawfully.” Id.
III. DISCUSSION
Both of the Investors’ claims fall short. The Investors cannot prevail under
section 12 because a split does not qualify as a statutory “sale” unless it
meaningfully changes the nature of the asset underlying the securities holders’
investment. And the Investors lose under section 11 because Barclays did not
issue the relevant ETNs pursuant to the April Supplement.
7 A. Section 12 Claim
Section 5 of the Securities Act prohibits the interstate sale of securities
“[u]nless a registration statement [governing them] is in effect.” 15 U.S.C.
§ 77e(a). Section 12, in turn, allows purchasers of unregistered securities to sue
anyone who “sells a security in violation of [section 5].” 15 U.S.C. § 77l(a).
“Sells” is a term of art: the statute expressly defines “[t]he term ‘sale’ or ‘sell’” as
“every . . . disposition of a security . . . for value.” 15 U.S.C. § 77b(a)(3) (emphasis
added).
While a cash purchase of a security clearly qualifies as a “disposition for
value,” a security-for-security swap might not. Id. “In determining whether
changes in the rights of a security holder involve a purchase or sale” – as opposed
to a not-for-value re-shuffling of assets – “courts must decide whether there has
occurred such significant change in the nature of the investment or in the
investment risks as to amount to a new investment.” Gelles v. TDA Indus., Inc., 44
F.3d 102, 104 (2d Cir. 1994) (internal quotation marks omitted). Garden-variety
splits, which merely recast the number of securities the investor holds, will rarely
bring about such “significant changes” because they do not “modif[y] the
underlying assets,” id., and instead alter “[o]nly the form” of the securities, Isquith
8 by Isquith v. Caremark Int'l, Inc., 136 F.3d 531, 536 (7th Cir. 1998) (Posner, J.). For
that reason, “a reverse . . . split” generally does “not even arguably . . . involve[]
any purchase or sale.” Gelles, 44 F.3d at 105; see also J. William Hicks, 7A
Exempted Trans. Under Securities Act 1933 § 10.86 (2026) (explaining that a “split
does not require distributees to give any value in exchange,” and that “such
distributions do not constitute a[] . . . sale.”); cf. 17 CFR § 230.145 (explaining that
“[a] reclassification of securities” shall not “be deemed” to involve a sale if it is
merely a “stock split [or] reverse stock split”).
This conclusion neatly matches the purposes of the Securities Act. See Sec.
& Exch. Comm'n v. Ralston Purina Co., 346 U.S. 119, 124–25 (1953) (“The natural way
to interpret the [Securities Act] is in light of the statutory purpose.”). “The design
of th[at] statute is to protect investors by promoting full disclosure of information
thought necessary to informed investment decisions.” Id. at 124. But when an
issuer announces a mandatory split, as happened here, investors “ha[ve] no
choice” and “ma[ke] no investment decision.” Isquith, 136 F.3d at 534; Thomas
Lee Hazen, 2 Law Sec. Reg. § 5:3 (2025) (hereinafter “Hazen”) (“The presence of
an investment decision is crucial to the finding of a purchase or sale.”). Subjecting
such compulsory splits to the Securities Act thus would do nothing to advance its
9 “purpose of . . . protect[ing] public investors through disclosure.” Pinter v. Dahl,
486 U.S. 622, 638 n.14 (1988).
These straightforward principles show why the reverse split at issue here is
not a sale. Barclays had an ironclad right to split the ETNs “[o]n any business
day.” J. App’x at 287. And when it exercised that right, the Investors did not
lose, or gain, anything: they simply traded in four ETNs for one ETN worth the
same amount. Although “[w]ords are protean in the hands of lawyers,” even the
most skilled verbal manipulation cannot transform such an involuntary and
immaterial swap into a “sale.” Isquith, F.3d at 534.
The Investors nevertheless attempt to rise to the challenge. They begin by
pointing to authorities explaining or implying that “[w]here securities are
exchanged for other securities, a sale takes place.” Reply Br. at 3 (internal
quotation marks omitted). But not all securities-for-securities swaps are created
equal: as the Investors’ own preferred treatise points out, while Congress
intended to define some “exchanges of securities as sales,” “when an exchange of
securities is involuntary and does not significantly alter the rights of the securities
holders, the exchange will not be treated as a sale.” Hazen at § 5:3; see also Gelles,
44 F.3d at 104 (same).
10 The Investors’ own caselaw illustrates the difference. They rely, for
instance, on In re Hub Cyber Sec. Ltd., which involved a so-called de-SPAC
transaction, where shareholders of a publicly traded shell company vote to
approve a merger with “an existing operating company,” and then their shares are
“automatically converted” to the “newly registered” securities of the post-merger
entity. No. 23-CV-5764 (AS), 2025 WL 872078, at *1, *8 (S.D.N.Y. Mar. 20, 2025)
(internal quotation marks omitted) (quoted by Investors’ Br. at 21). Such a
transaction clearly involves a securities-for-securities “sale”; the issuance of newly
registered securities as a result of the (voluntary) merger fundamentally changes
the nature of the shareholders’ investment. By contrast, the obligatory
combination of four notes into one larger note is exactly the kind of non-
substantive exchange that “will not be treated as a sale.” Hazen at § 5:3.
Perhaps sensing the weakness of their main argument, the Investors fall
back on the “distinction between equity and debt.” Reply Br. at 12. In their
view, cases like Gelles and Isquith “rest on the premise that the shareholder’s
proportional ownership of the same pool of assets persist[s] unchanged” – which
might hold true for shares in a company (equity), but which does not accurately
describe a shift in an issuer’s contractual obligations to pay (debt). Id. at 11–12.
11 But Gelles and Isquith discuss “securities” generally and focus on whether there
was a “significant change in the nature of the investment or in the investment
risks,” not whether the security at issue was equity or debt. Gelles, 44 F.3d at 104;
see also Isquith, 136 F.3d at 534. Furthermore, the Investors’ own favorite treatise
again contradicts their arguments by linking the Gelles test to both equity and debt
cases. See Hazen at § 5:3 (citing Sanderson v. Roethenmund, 682 F. Supp. 205, 209
(S.D.N.Y. 1988) (analyzing “automatic rollover” of certificates of deposit)).
The Investors nonetheless contend that even if debt splits can qualify as
“sales” only when they significantly change the nature of the investment, such a
change did occur here. In particular, the Investors claim that “the post-split ETNs
were not of equivalent value to the pre-split notes” because “holder[s] had the
right to redeem” the ETNs only “in blocks of 25,000 or more,” and “[a]fter the
Reverse Split, many holders who previously could redeem . . . were suddenly
unable to.” Investors’ Br. at 24. But the Investors do not explain why this
obstacle to redemption would have drastically changed their investment. As the
Investors themselves allege, the secondary market for VXX is “efficient” and
“highly liquid” – meaning that the Investors could simply sell their notes on the
New York Stock Exchange, without needing to exercise their redemption rights.
12 J. App’x at 222. Furthermore, as the district court explained, Barclays had the
right to split the ETNs at any moment, and the possibility of a suddenly reduced
ability to redeem them was therefore “priced into [their] original sale price.” Sp.
App’x at 26. 1
Finally, the Investors argue that the April Supplement served as an
“attempted registration of the VXX ETNs issued via the Reverse Split,” which
proves that Barclays intended to offer those ETNs for sale. Investors’ Br. at 32.
But, as discussed in the next section, the April Supplement did no such thing.
B. Section 11 Claims
The Investors’ section 11 claims fare no better than their section 12 ones.
Under section 11, investors who have “acquir[ed]” securities pursuant to a
“registration statement . . . contain[ing] . . . an untrue statement of material fact,”
11 U.S.C. § 77k(a), may “sue certain enumerated parties” involved in the issuance
of those securities, Herman & MacLean v. Huddleston, 459 U.S. 375, 381 (1983).
Because section 11 focuses on securities issued under a “particular registration
1 The Investors also contend that “many of the . . . post-split securities” were unregistered, therefore harder to sell on the secondary market, and thus “devalu[ed].” Investors’ Br. at 25. But the Investors never raised this argument before the district court, and “we decline to consider it in light of the well-established general rule that a court of appeals will not consider an issue raised for the first time on appeal.” Otal Invs. Ltd. v. M/V CLARY, 673 F.3d 108, 120 (2d Cir. 2012).
13 statement,” plaintiffs must first plead that they acquired securities “traceable to
[that] allegedly defective . . . statement.” Slack Techs., LLC v. Pirani, 598 U.S. 759,
767, 770 (2023) (emphasis added).
Here, the Investors attempt to trace the post-split ETNs to the April
Supplement. Under SEC rules, such a supplement may be “deemed to be a new
registration statement relating to the securities offered therein.” 17 C.F.R. §
229.512(a)(2). The Investors therefore argue that “the Pricing Supplement was a
new registration statement,” that it “incorporate[ed] . . . previous [misleading]
prospectuses,” and that Barclays is thus liable under section 11. Investors’ Br. at
39, 43–44.
But that logic only works if “the securities offered []in” the April Supplement,
17 C.F.R. § 229.512(a)(2), included the ETNs transferred to the Investors via the
reverse split. And the supplement’s own terms show that it does not cover those
ETNs but rather governs the “initial sale of the [post-split] ETNs” that Barclays
still held in its inventory, and which it had thus not distributed via the split. J.
App’x at 439. That is why the supplement also expressly provides that, “[u]nless”
Barclays indicates otherwise, “this pricing supplement is being used in . . . market-
making transaction[s],” which it defines as sales from Barclay’s own cache of post-
14 split ETNs to “dealers [who would] resell such ETNs to the public.” Id. at 439,
492.
Context confirms this commonsense reading of the April Supplement. The
supplement (i) refers to the split in the past tense, see id. at 437; Givaudan SA v.
Conagen Inc., 128 F.4th 485, 506 (2d Cir. 2025) (explaining that “[t]he past tense of
[a] statement . . . is irreconcilable with the notion” that the statement governs
future events); (ii) does not list the reverse split among a series of previous
“issu[ances],” and instead simply notes that Barclays had “announced” the split
two weeks before, J. App’x at 751, and (iii) was followed soon after by another
pricing supplement – covering yet another batch of ETNs – that once again did not
mention the reverse split as a previous issuance, id. at 814.
The Investors attempt to cover up this mountain of evidence with an
avalanche of irrelevant details. First, the Investors note that the April
Supplement refers to the reverse split and correctly identifies the number of post-
split ETNs. But that is hardly surprising because, as discussed above, that
supplement simply disclosed and described the previously announced split.
Second, the Investors point out that the April Supplement mentioned the post-split
ETNs’ new electronic identifying number – without explaining why that reference
15 to this administrative tag would somehow transform the supplement into a
registration statement governing the ETNs swapped in the reverse split. Finally,
the Investors point out that SEC Rule 416(b) requires issuers to “amend[]“ the
registration statement after reverse splits. 17 CFR § 230.416(b). The Investors
argue that Barclays circulated the April Supplement to comply with this rule, and
that the supplement thus “concerned” the ETNs exchanged in the reverse split.
Investors Br. at 34.
But the Investors misread Rule 416(b), which provides that
(i) “the amount of undistributed [post-split] securities . . . deemed to be covered by
the registration statement shall be proportionately reduced,” and (ii) “the
registration statement shall be amended prior to the offering of such . . . lesser
amount of securities to reflect the change in the amount of securities registered.”
Id. (emphases added). In other words, Rule 416(b) requires issuers to amend the
registration statement before issuing any undistributed securities following a split
– not before effecting the split itself. See Sec. & Exch. Comm'n Release Notice,
Release No. 4806, 1965 WL 89082 (Oct. 26, 1965) (“The rule also provides that when
all the securities of a class [that] includes undistributed registered securities are
combined by a reverse split into a lesser number of shares, the amount of
16 undistributed securities of such class covered by the registration statement shall be
proportionately reduced. The rule requires that the registration statement be
amended prior to the offering of such . . . securities.” (emphases added)). The
Investors have thus failed to plead any facts tracing their ETNs – which they
acquired via the reverse split – to the April Supplement. On the contrary, their
allegations suggest that Barclays did not view the reverse split as a sale, and that
it accordingly used the April Supplement to sell post-split securities from its own
inventory.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the district court
dismissing the Investors’ claims.