October 10, 2013
Topical Highlights for Securities provides summaries of significant federal and state judicial decisions and legislative and administrative activities affecting Securities law. A Westlaw subscription is required to access the documents linked from this page.
Trading and Markets: Unsecured promissory notes evincing loans to company were “securities” within meaning of federal securities law. S.E.C. v. Thompson 2013 WL 5498133 (C.A.10 (Utah)). Under the family resemblance test used to determine whether notes are “securities” under the Securities Exchange Act, approximately 60 unsecured promissory notes evincing loans to a businessman and his company as part of an alleged Ponzi scheme were found to be “securities.” The business started borrowing funds to grow a reserve toward $12 million it needed to fund a China biodiesel project, and the lenders were interested primarily in the 36 to 60 percent profit the notes were expected to generate. Although the original lenders were family members and friends who learned of the business investment through word-of-mouth, the program expanded to anyone, especially unsophisticated investors, who had $100,000 to invest. And although the instrument used expressly stated it was not a security and bore features not ordinarily associated with securities, such as acceleration conditions, a waiver-of-presentment clause, a non-assignment clause, and an attorney-fee-collection clause, a reasonable investor would likely question this characterization, given that it was disclosed from the beginning that the business was investing notes with another entity. 2013 WL 5498133. (The full-text of the rest of the Topical Highlights are available within Westlaw Next, subscription required).