Opinion ID: 196528
Heading Depth: 1
Heading Rank: 3

Heading: Sales Of Securities Or Bona Fide Loans?

Text: The FDIC also says that there were no sales of securities, arguing that these were bona fide loan transactions instead. We disagree. The pertinent state securities statute provides that the terms sale, sell, offer, or offer to sell do not include any bona fide pledge or loan. Mass. Gen. L. ch. 110A, 401(i)(6). The record amply supports the district court's conclusion that the loans were not made in the ordinary course of business and were not bona fide. The Bank and Keezer operated together in the marketing and financing of these condominium units to the plaintiffs. When it became apparent that the project might fail because the purchasers were having trouble getting financing, the Bank departed from standard banking practice and offered end loans to the plaintiffs (except Lopes and the Rileys). When it came to granting the end loans to the plaintiffs, the Bank's agent, sale of stock was a void transaction where notice of intention to sell shares had not been filed with the Department of Public Utilities), the promissory notes based upon the units were also void, and that, accordingly, no asset passed to the FDIC when it took over the Bank. The FDIC counters that notwithstanding Kneeland's use of the term void, the case actually employed the concept of voidability, see id. (stating that the transaction was void at the buyer's instance), and that an asset does pass to the FDIC if the transaction is voidable. See Kilpatrick v. Riddle, 907 F.2d 1523, 1528 (5th Cir. 1990). Because we hold that the plaintiffs' claims in this case do not depend upon an agreement or arrangement, we need not resolve this question. -16- 16 Keezer, knew or should have known that the sales were not registered and therefore could not be completed in compliance with the securities laws. He nevertheless participated in the vote to approve the end loans. That the substitution of the plaintiffs' good debt for HHI's bad debt may have been in the interest of the Bank and its shareholders does not establish that the Bank was involved in bona fide loan transactions. The substitution was based on the transfer of an unregistered security to the plaintiffs. Where the loans were entered into in the course of the Bank's effort to finance and market, through its agent, securities that the Bank knew or should have known could not be sold without registration, the loans were not bona fide.