Keener, Almagarby, and the Scope of the “Dealer” Definition: Potential Implications for Fund Managers and other Investors

With its decision in Securities and Exchange Commission v. Keener (May 29, 2024), the U.S. Court of Appeals for the Eleventh Circuit has now twice in the span of four months affirmed a broad interpretation of who is considered a “dealer” for purposes of the securities laws. 

More specifically, the Eleventh Circuit upheld the Securities and Exchange Commission’s (“SEC”) position that a person engaged in the business of purchasing—for its own account—convertible debt notes from microcap issuers (also referred to as “penny-stock” companies), converting the notes into common stock, and selling that stock in the market meets the definition of a “dealer” under the Securities Exchange Act of 1934 (the “Exchange Act”), and must therefore be registered as a dealer with the SEC. The decision in Keener closely tracked the same Court’s decision in Securities and Exchange Commission v. Almagarby, Microcap Equity Group (February 14, 2024), in which the Eleventh Circuit agreed with the SEC that the plaintiff Almagarby had been acting as an unregistered “dealer” in violation of the Exchange Act by obtaining convertible debt of microcap companies for his own account, converting the debt into common stock, and then selling the stock.

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