Opinion ID: 672857
Heading Depth: 3
Heading Rank: 2

Heading: The Plan of Distribution

Text: 24 The district court found that appellants' allegations of a broad plan of distribution, encompassing unsophisticated investors, militate[d] against a finding that the mortgage participations here are not securities. In other words, the plan of distribution supported a finding that regulation of these participations as securities is consistent with Congressional intent to protect unsophisticated investors. 25 Not surprisingly, appellees take issue with this portion of the district court's analysis. In this context, Laidlaw emphasizes that the mortgage participations were purchased through a discretionary account managed solely by Twiste, an experienced and sophisticated investment manager. Therefore, Laidlaw argues, the plan of distribution cuts against application of the securities laws. 26 We do not agree with this contention. By this argument, Laidlaw may be attempting to bring this case factually closer to Banco Espanol, in which we emphasized that restrictions on the marketing of certain loan participations strongly suggested that there was no need for the protection of the federal securities laws. The elements of the plan of distribution that we stressed in Banco Espanol included that only institutional and corporate entities were solicited, detailed individualized presentations were made to potential purchasers and resales were prohibited without the express written permission of the broker. 973 F.2d at 55. The marketing scheme in Banco Espanol was more analogous to a group of highly sophisticated commercial entities engaging in short-term commercial financing arrangements than to the securities markets. In contrast, the record before us does not suggest that the participations here were restricted to sophisticated investors who had the capacity to acquire information about the debtor. Id. 27 In Banco Espanol, we rule[d] only with respect to the loan participations as marketed ... [and] recognize[d] that even if an underlying instrument is not a security, the manner in which participations in that instrument are used, pooled, or marketed might establish that such participations are securities. Id. at 56 (citing Gary Plastic Packaging Corp., 756 F.2d at 240-42). The district court in this case correctly concluded that the broad-based, unrestricted sales to the general investing public alleged in the complaint support a finding that these instruments are within the scope of the federal securities laws. 28