Securities law
Wax v. Cross River Bank
Date: April 3, 2026
Issue: Whether Cross River Bank violated Rule 10b-5 of the Securities Exchange Act of 1934 by participating in a scheme with solar technology company Sunlight Financial to conceal the company’s financial risks and mislead investors.
Case Summary: A New Jersey federal court dismissed a lawsuit alleging that Cross River Bank participated in a scheme with solar technology company Sunlight Financial to conceal the company’s financial risks and mislead investors.
As background, Rule 10b-5 of the Securities Exchange Act of 1934 prohibits fraud, material misstatements, omissions, and manipulative acts in connection with the purchase and sale of any security.
In September 2024, Mitchell Wax and a group of investors (Plaintiffs) sued Cross River Bank in a class action alleging it violated Rule10b-5 by helping Sunlight originate and warehouse large volumes of risky loans through its indirect lending channel. Plaintiffs claimed that Cross River Bank raised lending limits and allowed Sunlight to exceed those limits while keeping that exposure off its balance sheet. Further, Plaintiffs asserted this conduct allowed Sunlight to hide growing liabilities tied to underperforming loans as interest rates rose, while Cross River Bank earned fees based on loan volume. A series of disclosures in 2022 and 2023 later revealed Sunlight’s worsening financial condition, its exposure to unsold loans, and its reliance on expanded credit from Cross River Bank, which led to a sharp drop in its stock price and its eventual bankruptcy.
On July 25, 2025, Cross River Bank moved to dismiss for failure to state a claim, arguing that Plaintiffs impermissibly assert an aiding-and-abetting securities fraud claim barred under Rule 10b-5. It also argued the claims are precluded by Sunlight’s confirmed bankruptcy plan—which enjoins suits affecting the reorganized company’s assets—and by a prior Southern District of New York securities settlement releasing claims based on the same allegations.
Judge Esther Salas of the District of New Jersey dismissed the case for failure to state a securities fraud claim, holding that plaintiffs did not adequately plead the required elements or scheme liability under Rule 10b-5. The court found the complaint deficient because it did not allege that Cross River Bank made public statements or engaged in independently deceptive conduct, instead relying on claims that the bank merely enabled Sunlight’s statements.
The court also ruled Plaintiffs failed to allege reliance, explaining that investors did not know about Cross River Bank’s alleged conduct, which made the connection between the bank’s actions and investor decisions too remote. The court rejected Plaintiffs’ attempt to recast the claims as scheme liability, pointing out that the allegations focused on Sunlight’s statements, not the bank’s conduct. Additionally, the court ruled that Plaintiffs did not allege facts showing deceptive conduct or that the bank’s actions made Sunlight’s alleged misstatements inevitable.
Bottom Line: The court dismissed the lawsuit against Cross River Bank without prejudice, giving Plaintiffs the opportunity to amend their complaint.
Document: Opinion
