Marine Bank v. Weaver - 455 U.S. 551, 102 S. Ct. 1220 (1982)

Rule:

The broad statutory definition of securities in the Securities Exchange Act of 1934 and the Securities Act of 1933 is preceded, however, by the statement that the terms mentioned are not to be considered securities if "the context otherwise requires." Moreover, the Court is satisfied that Congress, in enacting the securities laws, did not intend to provide a broad federal remedy for all fraud.

Facts:

After respondents purchased a $ 50,000 certificate of deposit, with a 6-year maturity, from petitioner federally regulated bank, they pledged it to petitioner to guarantee a $ 65,000 loan made to a company that owed petitioner $ 33,000 for prior loans and was also overdrawn on its checking account. In consideration for guaranteeing the new loan, the company's owners entered into an agreement with respondents whereby respondents were to receive a share of the company's profits and other compensation. The new loan, rather than being used as working capital by the company as petitioner's officers allegedly told respondents it would, was applied to pay the company's overdue obligations to petitioner. Subsequently, the company became bankrupt, and petitioner disclosed its intention to claim the pledged certificate of deposit. Respondents then brought suit in Federal District Court, claiming that petitioner violated, inter alia, the antifraud provisions of § 10(b) of the Securities Exchange Act of 1934 (Act) by soliciting the loan guarantee while knowing, but not disclosing, the borrowing company's financial plight or petitioner's plans to repay itself from the guaranteed loan. The District Court granted summary judgment in petitioner's favor, holding that if a wrong occurred, it did not occur "in connection with the purchase or sale of any security" as required for liability under § 10(b). The Court of Appeals reversed, holding that it could reasonably be found that either the certificate of deposit or the agreement between respondents and the company's owners was a security. Certiorari was granted. 

Issue:

Could the certificate of deposit and business agreement be considered as securities under antifraud provisions of the federal securities laws? 

Answer:

No.

Conclusion:

The Court held that the certificate of deposit purchased from a federally regulated bank with a six year maturity date was not a security for purposes of the antifraud provision of 10(b) of the Securities Exchange Act of 1934 (15 USCS 78j(b)) since a certificate of deposit was not the functional equivalent of the withdrawable capital shares of a savings and loan association, nor was a certificate of deposit similar to any other long-term debt obligation commonly found to be a security. According to the Court, the agreement between the purchasers of the certificate of deposit and the owners of the business was not a security for purposes of the anti-fraud provisions of 10(b) of the Securities Exchange Act of 1934 (15 USCS 78j(b)) since the business owners distributed no prospectus to the purchasers of the certificate or to other potential investors and the agreement was not to be traded publicly. The Court further held that although the agreement provided for distribution of a share of the profits, that provision alone was not sufficient to make the agreement a security.