Supreme Court Petition in Xeriant v. Auctus Fund: A Defining Moment in the SEC’s War on Toxic Lenders

The petition filed in Xeriant, Inc. v. Auctus Fund, LLC, before the Supreme Court of the United States, presents one of the most consequential securities-law questions in recent memory. It challenges a Second Circuit opinion that, if left standing, could unravel years of progress in protecting small public companies from predatory convertible-debt financing. The petitioner, represented by The Basile Law Firm, P.C., argues that the decision below conflicts with statutory text, established precedent, and the structure of the Securities Exchange Act of 1934.

I. The Question Presented

At issue is whether an unregistered dealer violates Section 15(a) of the Exchange Act merely by purchasing a convertible note, which is itself a security. The Second Circuit held that such a purchase does not violate the statute because the note agreement “did not obligate” the lender to act as a dealer. The petition argues that the Second Circuit’s interpretation reads words into the statute that do not exist and creates a direct conflict with decisions of other federal courts.


II. Statutory Background

Section 15(a) of the Exchange Act makes it unlawful for any unregistered broker or dealer to “effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security.” Congress adopted this language to ensure that all persons engaged in the securities business were registered, supervised, and subject to examination by regulators. Section 29(b) provides the corresponding private right of rescission, declaring every contract made in violation of the Act voidable at the option of the innocent party.

The petition explains that together, these provisions create a closed system of enforcement. The SEC may prosecute unregistered-dealer conduct, and private parties such as Xeriant may void contracts made in violation of Section 15(a). The Second Circuit’s interpretation undermines that balance by narrowing the class of voidable contracts and excusing the very conduct Congress sought to prohibit.

III. The Second Circuit’s Decision

Xeriant borrowed money from Auctus Fund LLC through a convertible note and a warrant to purchase millions of shares. When Xeriant later discovered that Auctus had been investigated for operating as an unregistered dealer, it sued to rescind the agreement under Section 29(b). The Southern District of New York dismissed the claim, and the Second Circuit affirmed. The appellate court concluded that the note contract could not be voided because it did not require Auctus to act as a dealer.

The Basile Law Firm’s petition characterizes the Second Circuit’s reasoning as contrary to the plain text of Section 15(a). The statute does not require that the contract itself “obligate” a dealer to act illegally; it simply prohibits any unregistered dealer from effecting a transaction in a security. Auctus, by purchasing Xeriant’s convertible note, effected such a transaction.

IV. The First Argument: The Plain-Text Rule

The petition emphasizes that Section 15(a)’s text is unambiguous. By using the phrase “any transaction in any security,” Congress intended to capture every securities deal entered by an unregistered dealer. The Second Circuit’s invention of an “obligation” test, according to the petition, contradicts Supreme Court precedent such as Lamie v. U.S. Trustee, 540 U.S. 526 (2004), which holds that courts must apply statutes as written when their language is clear.

The petition warns that allowing courts to narrow Section 15(a) invites inconsistent results and creates a loophole for sophisticated toxic lenders to circumvent registration simply by structuring their contracts to avoid explicit “dealer obligations.”

V. The Second Argument: The Circuit Split

The petition highlights a sharp conflict between the Second Circuit and the Eleventh Circuit’s decision in SEC v. Almagarby, 93 F.4th 1225 (11th Cir. 2024), as well as the Fifth Circuit’s decision in Eastside Church of Christ v. National Plan, Inc., 391 F.2d 357 (5th Cir. 1968). Both of those courts held that the act of purchasing or selling securities without registration violates Section 15(a), regardless of whether the dealer subsequently sells to others.

In Almagarby, the Eleventh Circuit affirmed summary judgment for the SEC, finding that the defendant’s convertible-note transactions were unlawful because he “purchased to sell” and engaged in a business of dealing in securities. The Second Circuit’s contrary conclusion in Xeriant creates a direct circuit split on the threshold question of what conduct constitutes “effecting a transaction.”

VI. The Third Argument: The Exempt-Transaction Misinterpretation

The Second Circuit also stated that because Auctus purchased the note in a private placement under Section 4(a)(2) of the Securities Act, the note was “not a security” for purposes of Section 15(a). The petition argues that this footnote is both unprecedented and illogical. Section 15(a) excludes “exempted securities,” not “exempt transactions.” Every convertible note sold in a private placement remains a security under Section 3(a)(10) of the Exchange Act.

Accepting the Second Circuit’s view would nullify decades of SEC enforcement actions, all of which involved privately placed convertible notes. The petition stresses that no other circuit has ever held that a private placement transforms a security into a non-security.

VII. The Fourth Argument: Undermining Section 29(b)

Under Section 29(b), any contract made or performed in violation of the Exchange Act is voidable. The petition argues that the Second Circuit’s “obligation” requirement effectively nullifies this right. If a contract cannot be voided unless it expressly compels unlawful conduct, few, if any, illegal contracts could ever be rescinded. Congress intended Section 29(b) to serve as a strong deterrent against violations; the decision below erodes that protection.

VIII. The Fifth Argument: Policy and Market Integrity

Beyond statutory text, the petition underscores the market consequences of the Second Circuit’s approach. The SEC had previously prevailed in a nationwide series of unregistered-dealer enforcement actions, winning summary judgments and settlements in cases, including SEC v. GHS Investments, SEC v. GPL Ventures, SEC v. Carebourn Capital, SEC v. Fierro, and SEC v. BHP Capital. Those victories established that toxic lenders who repeatedly buy convertible notes and resell stock function as unregistered dealers.

Allowing such lenders to escape liability in New York threatens to create a safe harbor for predatory financing. The petition likens this to earlier resistance in New York courts to treating toxic loans as usurious—an error later corrected by the state’s highest court.

IX. Broader Implications

The petition explains that the Second Circuit’s rule harms both public companies and investors. Microcap issuers depend on consistent application of dealer-registration requirements to prevent abusive financing schemes. Investors rely on disclosure and fair dealing from registered intermediaries. By shielding unregistered dealers from rescission, the decision invites renewed exploitation of the most vulnerable segment of the public markets.

X. The Role of The Basile Law Firm, P.C.

The Basile Law Firm, P.C. has led the private-sector fight against toxic lenders, filing numerous lawsuits across federal and state courts alleging unregistered-dealer violations, usury, and civil racketeering. The firm’s petition in Xeriant v. Auctus Fund builds on years of litigation experience and reflects a broader effort to restore accountability to the microcap financing space.

XI. Conclusion

The petition urges the Supreme Court to resolve the conflict among the circuits and reaffirm that the plain language of Section 15(a) prohibits unregistered dealers from entering into any transaction in any security. It calls for restoration of the statutory remedy under Section 29(b) and renewed protection for small public companies targeted by toxic lenders.

If granted, the case could mark a turning point in how federal courts interpret the Exchange Act’s core registration provisions and determine whether the era of unregistered-dealer financing finally comes to an end.

If you have any questions about this article or would like to speak to a Securities Attorney, Hamilton & Associates Law Group, P.A. is ready to help. Our Founder, Brenda Hamilton, is a nationally known and recognized securities attorney with over two decades of experience assisting issuers worldwide with going public on the Nasdaq, NYSE, and OTC Markets. Since 1998, Ms. Hamilton has been a leading voice in corporate and securities law, representing both domestic and international clients across diverse industries and jurisdictions. Whether you are taking your company public, raising capital, navigating regulatory challenges, or entering new markets, Brenda Hamilton and her team deliver the experience, strategic insight, and results-driven representation you need to succeed.

To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected].

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