JERICHO, NY / ACCESSWIRE / November 10, 2021 / The Basile Law Firm P.C. Announces That it Has Secured a 6 to 1 Majority Landmark Decision by New York's Highest Court Confirming That New York's Criminal Usury Law is Applicable to Convertible Promissory Notes.
The Basile Law Firm P.C., a national securities litigation and public company restructuring firm with offices in Dallas, New York, and Naples, is announcing that it has secured a major victory for many public companies suffering from toxic convertible notes that can destroy shareholder value. The landmark decision was rendered by the New York Court of Appeals in the case Adar Bays, LLC v. GeneSYSID, Inc., No. 51, 2021 BL 393765 (N.Y. Oct. 14, 2021). This is a major decision that will affect the legality of certain financial instruments, including convertible promissory notes, and a legal shift that issuers and shareholders alike can benefit from. Attorneys Mark R. Basile, Esq. and Marjorie M. Santelli, Esq. from The Basile Law Firm P.C. represented GeneSYSID, Inc, with Marjorie M. Santelli, Esq. presenting oral argument (https://law.justia.com/cases/new-york/court-of-appeals/2021/51.html).
A convertible note is a security within the meaning of federal securities laws, and is an alternative funding instrument used by small public companies that are strapped for cash. Most troubling about convertible notes is that certain lenders include a unilateral right to request satisfaction of the debt owed thereunder through conversion of the debt, in whole or in part, into new issuer securities at a substantial discount to prevailing market prices (rather than through the payment of cash at the maturity date). In order to evade reporting requirements imposed by federal securities laws, the lenders typically sell substantially all (if not all) of the converted securities back into the public market. The massive influx of shares being introduced into the marketplace can severely depress the issuer's stock price, in addition to diluting shareholders and making it considerably more difficult for the issuer to procure clean capital. This also opens the floodgates to potential market manipulation schemes concerning counterfeit shares to possible naked short selling, both of which are illegal under federal securities laws.
The recent decision by the New York Court of Appeals currently only applies to transactions that are governed by New York law, including its usury statutes. However, other states, such as Massachusetts, Florida, and California, have similar usury statutes and whose courts often turn to the New York Court of Appeals for guidance on interpretation of usury laws (https://www.thebasilelawfirm.com/post/new-york-s-highest-court-rules-convertible-notes-subject-to-criminal-usury-laws).
This landmark decision by New York's highest court confirms that fixed discount rate convertible notes that a public company may have on its books may violate New York's criminal usury laws, which would result in the transaction being declared void. The Basile Law Firm P.C. strongly urges executive management teams of OTC Markets and NASDAQ companies to consult with their corporate and securities counsel to determine whether any existing debt liability imposed by convertible notes that impose a fixed discount conversion right can be cancelled under applicable law(s).
The Basile Law Firm P.C. is also available to discuss your company's rights with your counsel or your executive management team, and can be reached through the firm's website at www.thebasilelawfirm.com or directly through the email addresses listed below.
Founded in 1968, The Basile Law Firm P.C. represents issuers focusing on securities finance litigation and public company restructurings.
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The Basile Law Firm P.C.
Mark R. Basile, Esq.
Tel.: 516-455-1500 x112
Email: [email protected]
SOURCE: The Basile Law Firm P.C.