Acuitas Capital, LLC v. Ideanomics, Inc.
- Paul Engelmayer
- 1:23-cv-02124
- U.S. District Court · Southern District of New York
- 3
In Acuitas v. Ideanomics, Judge Engelmayer denied discovery into Acuitas’s possible unregistered-dealer status because it was immaterial to the contract claims.
Acuitas Capital, LLC and Ideanomics, Inc.; the ruling limits discovery in this case but leaves discovery to continue on other matters under the case-management plan.
What happened
Acuitas Capital and Ideanomics disagreed about whether Acuitas had acted as an unregistered securities dealer in connection with their Securities Purchase Agreement. Ideanomics argued that this could make the agreement unenforceable and affect the case’s remedies.
Acuitas argued that the agreement could not be rescinded on that basis and that investigating its dealer status would be costly, time-consuming, and pointless. Acuitas also said that, if the agreement were rescinded, it should receive back its $20 million investment.
The court ruled that the agreement allowed, but did not require, Acuitas to sell securities or act as a broker-dealer, so the agreement was not inherently unlawful. Judge Engelmayer denied Ideanomics’s request for discovery on the dealer-status issue and directed discovery to continue under the parties’ case-management plan.
The detailed version
- Acuitas Capital, LLC v. Ideanomics, Inc. · No. 1:23-cv-02124
- Paul Engelmayer
- June 21, 2023
Background
Ideanomics asked the court to allow discovery into whether Acuitas had acted as an unregistered dealer in violation of Section 15(a) of the Securities Exchange Act of 1934. The parties had been asked to address what effect such a finding would have on the case and what remedies might follow.
Ideanomics argued that, if Acuitas had violated the dealer-registration requirement, Section 29(b) of the Exchange Act would make the Securities Purchase Agreement unenforceable. It argued that the court would then have to dismiss Acuitas’s complaint with prejudice, release escrowed funds to Ideanomics, and potentially order additional remedies, including giving Ideanomics some or all of the proceeds from Acuitas’s sales of shares obtained under the agreement.
Acuitas argued that a finding that it acted as an unregistered dealer would not permit rescission of the agreement. It also argued that discovery into the issue would be expensive, time-consuming, and futile. Acuitas stated that, if the court ordered rescission, it would be entitled to the return of its $20 million investment in Ideanomics.
Court’s reasoning
The court relied on decisions explaining that Section 29(b) permits rescission of unlawful contracts, not necessarily of lawful contracts merely because unlawful transactions were conducted under them. The Securities Purchase Agreement permitted Acuitas to sell securities purchased under the agreement or otherwise act as a broker-dealer, but it did not require those activities. The court therefore concluded that the agreement was not inherently unlawful and that Acuitas’s possible unregistered-dealer status would not make the contract as a whole unlawful or affect the contract claims at issue.
Ruling
Judge Engelmayer denied Ideanomics’s application for discovery into whether Acuitas acted as an unregistered dealer because that issue was immaterial to the outcome of the case. The court directed discovery to proceed as provided in the parties’ case-management plan.
Read the full 3-page opinion on CourtListener, the free public archive maintained by the Free Law Project.