Contract analysis

I. Executive Summary You have asked us to analyze the potential federal securities-law liability exposure arising from the distribution of the Preliminary Offering Memorandum (the "Preliminary OM") dated April 5, 2024, for SkyLend Receivables Trust 2024-1 (the "Trust") to twenty-eight (28) institutional investors during the investor roadshow conducted from April 15 through April 19, 2024. This memorandum sets forth o

II. Factual Background A. The Proposed Transaction SkyLend Receivables Trust 2024-1 (the "Trust") is a Delaware statutory trust formed on February 14, 2024, under a Trust Agreement between SkyLend Funding LLC, as depositor, and Hollowell Financial, as owner trustee. The Trust was assigned Employer Identification Number 93-4201855. It was established for the purpose of issuing asset-backed notes secured by a pool of u

III. Analysis Under Rule 10b-5 (Securities Exchange Act of 1934) A. Elements of a Rule 10b-5 Claim Rule 10b-5, codified at 17 C.F.R. § 240.10b-5 and promulgated by the Securities and Exchange Commission ("SEC") under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), is the principal federal antifraud provision in the securities laws. The rule makes it unlawful for any person, directly or indir

IV. Analysis Under Securities Act § 12(a)(2) A. Statutory Framework

Section 12(a)(2) of the Securities Act of 1933, 15 U.S.C. § 77l(a)(2), imposes liability on any person who "offers or sells a security . . . by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading." The provision creates

V. Analysis Under Securities Act § 17(a) A. Statutory Framework

Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a), provides that it shall be unlawful for any person in the offer or sale of any securities or any security-based swap agreement, by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly: (1) to employ any device, scheme, or artifice to defraud; (2) to obtain money or pr

Section 17(a) is exclusively an enforcement provision. The Supreme Court has not recognized a private right of action under Section 17(a), and the lower federal courts have overwhelmingly held that no such right exists. See, e.g., Maldonado v. Dominguez, 137 F.3d 1, 7 (1st Cir. 1998); Finkel v. Stratton Corp., 962 F.2d 169, 174 (2d Cir. 1992). The scienter requirements under Section 17(a) vary by subsection. In Aaron

Section 17(a)(1) — scheme to defraud. Section 17(a)(1) requires scienter. For the reasons discussed in Section III.C above, SBF likely lacks the requisite scienter. No evidence suggests that SBF employed any device, scheme, or artifice to defraud the roadshow investors. The misstatement in the Preliminary OM resulted from SBF's good-faith reliance on erroneous servicing data from Clearview, not from any intentional o

Section 17(a)(2) — material misstatement for the purpose of obtaining money or property. Section 17(a)(2) requires only negligence but includes the additional element that the defendant must "obtain money or property" by means of the untrue statement. SBF's failure to independently verify Clearview's servicing data before including it in the Preliminary OM could arguably satisfy the negligence standard — a reasonable

Section 17(a)(3) — fraudulent course of business. Section 17(a)(3) requires only negligence and does not contain the "obtain money or property" requirement of Section 17(a)(2). It prohibits engaging in any "transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser." The distribution of a Preliminary OM containing materially inaccurate static-pool performance

VI. Additional Regulatory and Liability Considerations A. Regulation AB and SEC Reporting Regulation AB, codified at 17 C.F.R. §§ 229.1100 through 229.1125, establishes the SEC's comprehensive disclosure framework for registered offerings of asset-backed securities. Regulation AB prescribes detailed requirements for the disclosure of pool-level and loan-level data, static-pool performance information, servicing arran