Issuer Can’t Void Hedge Fund Debt Conversion Deal, 2nd Cir. Says

An aerospace technology company can’t tear up a contract allowing a Boston hedge fund to convert an unpaid loan to stock, the Second Circuit ruled Wednesday.

The convertible loan agreement between microcap issuer Xeriant Inc. and Auctus Fund LLC doesn’t require Auctus to violate federal securities law, even assuming its sale of the stock on the market would be unlawful, the influential appeals court said.

The opinion addresses what private parties—as opposed the the Securities and Exchange Commission—can do about hedge funds allegedly acting as unregistered securities “dealers” by regularly obtaining penny stock at a discount from market price through ...