New York Court Delivers Usury Decision for Stock Conversion Options, Interest Charges

The New York State Court of Appeals delivered a usury decision this month in the case of Adar Bays, LLC v. GeneSys ID, Inc. which answered, in the affirmative, two questions certified by the Second Circuit pertaining to stock conversion options for lenders and interest charges. 

In its ruling, the court said that “a stock conversion option that permitted a lender, in its sole discretion, to convert any outstanding balance to shares of stock at a fixed discount should be treated as interest for the purpose of determining whether the transaction violated … the criminal usury law” and that “if the interest charged on a loan was determined to be criminally usurious, the contract was void.”