Sabby Volatility Warrant Master Fund Ltd. v. Kiromic Biopharma, Inc.
- Stewart Aaron
- 1:22-cv-01927
- U.S. District Court · Southern District of New York
- 6
In Sabby Volatility v. Kiromic, Judge Aaron approved a securities-registration exemption for settlement notes and related shares.
Sabby, Empery, their designees, and Kiromic Biopharma, Inc. were directly affected. The order approved Kiromic’s settlement-related convertible notes and the shares issuable upon conversion as exempt from registration, and it ended the plaintiffs’ amended complaint against the defendants.
What happened
In Sabby Volatility Warrant Master Fund Ltd. v. Kiromic Biopharma, Inc., investors sued Kiromic and certain directors over allegedly false or misleading offering documents. The parties later settled, with Kiromic agreeing to issue convertible notes to Sabby and Empery or their designees.
The court held that the requirements for an exemption under Section 3(a)(10) of the Securities Act were met: the notes exchanged existing claims, the parties had a hearing, and the terms were fair. The court granted the consent motion, approved the notes and the shares issuable upon conversion as exempt from registration and without restrictive legends, and directed entry of final judgment dismissing the amended complaint and closing the case.
Judge Stewart D. Aaron issued the ruling and retained jurisdiction to resolve issues related to the order.
The detailed version
- Sabby Volatility Warrant Master Fund Ltd. v. Kiromic Biopharma, Inc. · No. 1:22-cv-01927
- Stewart Aaron
- Nov. 2, 2022
Background
Sabby Volatility Warrant Master Fund Ltd. and Empery Asset Master, Ltd., Empery Tax Efficient, LP, and Empery Tax Efficient Ill, LP sued Kiromic Biopharma, Inc. and certain current and former directors under Sections 11, 12(a), and 15 of the Securities Act of 1933. The plaintiffs alleged that offering documents contained false or misleading statements. The opinion states that the plaintiffs had invested a total of $7,500,000 in the offering.
The plaintiffs and defendants entered into separate settlement agreements. Under those agreements, Kiromic agreed to issue convertible notes with an aggregate principal amount of $1,656,720 to Sabby or its designees and another $1,656,720 to Empery or its designees. The notes could be converted into Kiromic common stock, subject to a 9.99% beneficial-ownership limit. The settlement agreements contemplated seeking a court order under Section 3(a)(10) of the Securities Act.
Legal standard
Section 3(a)(10) provides an exemption from registration for securities issued in exchange for outstanding securities, claims, or property interests when a court approves the fairness of the terms and conditions after a hearing at which the persons receiving the securities have the right to appear. The court identified three requirements: an exchange for outstanding claims or similar interests, a hearing on fairness, and a court finding that the terms are fair and approving the transaction.
Court’s analysis
The court found that all three requirements were satisfied. First, the settlement agreements provided for the required exchange. Second, the court held a telephonic hearing on November 2, 2022, with counsel for the parties participating. Third, the court found that the terms and conditions were fair to the persons receiving the securities. The court also considered sworn declarations from Sabby and Empery concerning the fairness of the transaction.
Disposition
The court granted the consent motion. It approved the issuance or transfer of the Empery Notes and the Sabby Notes as fair under Section 3(a)(10). The order stated that the notes were unrestricted and exempt from registration with the Securities and Exchange Commission. It also stated that the Kiromic shares issuable upon conversion of the notes, subject to the beneficial-ownership limitation, would be unrestricted, exempt from registration, and issuable without restrictive legends.
The court directed the Clerk of Court to enter final judgment dismissing the First Amended Complaint and closing the case. The court retained jurisdiction under 28 U.S.C. § 636(c) to resolve issues relating to the order.
Read the full 6-page opinion on CourtListener, the free public archive maintained by the Free Law Project.