Securities Regulation Daily Wrap Up, SECURITIES OFFERINGS—5th Cir.: Stock-for-stock exchange constituted a purchase, (Jul 7, 2026)

By Rodney F. Tonkovic, J.D.

The shareholders acquired securities for value when they gave up preferred shares for stock in spun-off company.

A Fifth Circuit panel reversed the dismissal of Securities Act claims after finding that a stock-for-stock exchange was a purchase. The district court had concluded that the shareholders lacked standing because after a spinoff, they received shares as a distribution and did not purchase them for value. Looking more closely at the transaction, the panel held that there was a stock-for-stock exchange, which under circuit precedent constituted a sale and gave the plaintiffs standing. The panel accordingly reversed and remanded (Targgart v. Next Bridge Hydrocarbons, Incorporated, No. 25-10879 (5th Cir. June 26, 2026)).

Spinoff. Oil and gas company Next Bridge was incorporated in 2021 as part of a spinoff. Its predecessor, Torchlight Energy Resource, merged with Metamaterial Technologies Inc. to become Meta Materials Inc. As part of the agreement, Torchlight's oil and gas assets were spun off into the new Next Bridge, the common stock of which was distributed to Torchlight's preferred stockholders in December 2022. At the same time, the preferred stock was canceled, and investors only had interests in Next Bridge.

In the meantime, in July 2022, Next Bridge filed a registration statement valuing the oil and gas assets at $47,293,607. After the spinoff, Next Bridge filed its 2022 fiscal report listing the value of its assets as $79,695,928. In the following year's report, Next Bridge restated the 2022 report to reflect that its oil and gas assets had been worth nothing.

A distribution. The plaintiffs sued, alleging that Next Bridge violated the Securities Act by filing an inaccurate registration statement. The district court dismissed the claims for lack of standing, concluding that the plaintiffs did not purchase their Next Bridge shares because they received them as a distribution and did not purchase them for value.

Exchange was a purchase. The panel disagreed with the district court's conclusion and reversed. According to the panel, the district court reasoned that the plaintiffs were not required to give up their equity in Meta Materials and after the spinoff held both their preferred stock and Next Bridge stock.

This did not accurately reflect the transaction, the panel said, stating that the registration statement clearly said that all preferred stock was cancelled when the Next Bridge stock was distributed and the shareholders had no more rights in those shares. Based on Fifth Circuit precedent, where a shareholder relinquishes their partnership interests to receive shares in a new company, this "trade" constitutes a purchase under the Securities Act. In this case, the plaintiffs gave up one security for another, and that stock-for-stock exchange satisfies Section 11, the panel said.

CEO statements. The complaint also alleged that Next Bridge's CEO violated Section 12 by encouraging investment in Next Bridge. The district court dismissed this claim for lack of standing and because his statements did not pertain to Next Bridge. The panel disagreed and reversed, finding that the statements at issue at least intimated that investors should acquire interests in Next Bridge.

The case is No. 25-10879.

Judge: Per Curiam.

Attorneys: Adam M. Apton (Levi & Korsinsky, LLP) for Todd Targgart. David J. Drez, III (Wick Phillips) for Next Bridge Hydrocarbons, Inc., Robert L. Cook, Clifton Dubose, Jr., Joseph DeWoody, Lucas T. Hawkins, Delvina Oelkers, Mia Pitts, Kristin Whitley and Gregory McCabe. Jason Scott Lewis (DLA Piper) for John Brda.

Companies: Next Bridge Hydrocarbons, Inc.

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