Berckeley Investment Group, Ltd. v. Colkitt
United States Court of Appeals for the Third Circuit
455 F.3d 195 (3d Cir. 2006)
Douglas Colkitt (defendant) sold $2,000,000 in convertible debentures to Berckeley Investment Group (plaintiff), giving Berckeley the right to convert into unregistered shares of Colkitt's company at a discount, structured to comply with Regulation S's then-40-day resale restriction; after the restriction period was later extended to one year by regulation, Colkitt allowed only partial conversion before refusing further conversions, prompting Berckeley to sue. Colkitt argued he could rescind the entire agreement under Exchange Act Section 29(b) because it violated federal securities registration and anti-fraud rules; the district court granted Berckeley summary judgment, and Colkitt appealed.
Whether a party may rescind an entire securities purchase agreement under Section 29(b) of the Exchange Act based on securities-law violations that occurred in downstream resales rather than in the agreement's core obligations.