Document Type



In 1973, experts Homer Kripke and John J. Slain published a

seminal study titled The Interface Between Securities Regulation and

Bankruptcy—Allocating the Risk of Illegal Securities Issuance

between Securityholders and the Issuer’s Creditors. That lengthy

analysis, contributed by, respectively, a former Securities and

Exchange Commission official and a professor of law, examined the

status quo and concluded that investors were receiving unfair priority

vis-à-vis creditors in bankruptcy proceedings administered under the

federal Bankruptcy Code. Focusing on the traditional “absolute

priority rule,” the study pointed out that the Securities and Exchange

Commission support for the investor priority was unfounded and

urged deference to the notion of general creditors coming first.

Since then, a host of developments complicated both the analysis

and the traditional view of Kripke and Slain. First, the pivotal

determination of “rescinding shareholder” has been made complex

by, among other things, an expanded notion of “sophisticated

investor” occasioned by phenomena such as “crowdfunding.”

Second, stock swaps, hedges, repurchase agreements, and other

hybrid responses to financier discomfort have clouded the definition

of “investor.” Finally, the explosive growth of cryptocurrencies (and

the ventures that would sell, distribute, trade, or package them)

highlighted the need for a new, softer line between creditor and


Accordingly, the present authors revisit the absolute priority rule

with a view towards historic SEC involvement with bankruptcy law

and contemporary classification of some cryptocurrency-related

entities as securities issuers. The article concludes that in light of the

existing provisions and interpretations, the “absolute priority rule”

examined through the lens of today’s innovative securities should be

rethought to give investors in initial coin offerings creditor status.

Whether the reader agrees or not is likely subordinated to the need

for a conversation on the most egalitarian response—under both the

securities laws and the Bankruptcy Code—to the investor’s claim for

in pari passu treatment normally reserved for creditors, and likewise

the general creditors’ opposition to sharing a legally enforceable