Opinion ID: 476327
Heading Depth: 3
Heading Rank: 1

Heading: Fraud In Connection With Repos.

Text: 20 Andersen argues at the outset that the district court committed reversible error in instructing the jury that repos are securities. We disagree. Although several courts have defined repos, compare, e.g., SEC v. Miller, 495 F.Supp. 465, 467 (S.D.N.Y.1980) (characterizing repos as essentially short-term collateralized loans); In re Legel, Braswell Government Securities Corp., 648 F.2d 321, 324 n. 5 (5th Cir.1981) (same); United States v. Erickson, 601 F.2d 296, 300 n. 4 (7th Cir.) (in substance a secured loan), cert. denied, 444 U.S. 979, 100 S.Ct. 480, 62 L.Ed.2d 406 (1979); Ehrlich-Bober & Co. v. University of Houston, 49 N.Y.2d 574, 577, 404 N.E.2d 726, 728, 427 N.Y.S.2d 604, 606 (1980) (in essence, a loan transaction), with City of Harrisburg v. Bradford Trust Co., 621 F.Supp. 463, 469-70 (M.D.Pa.1985) (repos are securities for purpose of the antifraud provisions of the 1933 and 1934 Acts); SEC v. Gomez, [Current Transfer Binder] Fed.Sec.L.Rep. (CCH) p 92,013 (S.D.Fla.1985) (same), the question of whether repos are securities remains unresolved in this Circuit. See Drysdale, 785 F.2d at 41 n. 2 (assuming without deciding that repos are not securities, but holding that fraud in connection with repos is cognizable under section 10(b)). We need not resolve this question to hold, as we do today, that even assuming repos are not securities, the district court's instruction that they are securities, if erroneous, constitutes mere harmless error. 21 Even assuming that repos are not securities, they are subject to section 10(b) and Rule 10b-5. See Drysdale, supra at 38; see also Securities Act Release No. 33-6351, 1 Fed.Sec.L.Rep. (CCH) p 2024, at 2559-2 (Sept. 25, 1981) (The antifraud provisions [of the securities laws] ... apply to the offer, sale and purchase of U.S. government securities occurring in connection with traditional repurchase agreements); Board of Governors of the Federal Reserve System, Division of Banking Supervision and Regulation, Letter SR-82-25 (FIS), 3 Fed.Banking L.Rep. (CCH) p 60,798.35, at 38,858 (May 13, 1981) (same). 6 Viewing repos, as we must, from the perspective of their economic significance, see, e.g., SEC v. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946), we think that the repos at issue herein fit squarely within the statutory language in the 1934 Act describing contract[s] to buy, purchase or otherwise acquire securities. 15 U.S.C. Sec. 78c(a)(13). As such, and consistent with our holding in Drysdale, repos are subject to the antifraud provisions of the 1934 Act. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 750-51, 95 S.Ct. 1917, 1932, 44 L.Ed.2d 539 (1975). 22 Since repos involve the purchase and sale of securities, it follows that the jury's finding of fraud in connection with repos was a finding of fraud in connection with the purchase and sale of securities. See id.; see also Abrams v. Oppenheimer Government Securities, Inc., 737 F.2d 582, 586-89 (7th Cir.1984). Indeed, even if one focuses exclusively on the loan, as opposed to the purchase and sale, characteristics of repos, for purposes of the antifraud provisions of the 1934 Act, [t]he terms 'sale' or 'sell' each include any contract to sell or otherwise dispose of a security. 15 U.S.C. Sec. 78c(a)(14). The repos herein certainly satisfy that broad definition. Cf. Yoder v. Orthomolecular Nutrition Institute, Inc., 751 F.2d 555, 559 (2d Cir.1985) (Friendly, J.) (holding cognizable under antifraud provisions of 1933 and 1934 Acts fraud in connection with a contract for the issuance or transfer of a security). 23 In our view, the preferred instruction would have been that repos may or may not themselves constitute securities, but that, in either event, fraud in connection with repos satisfies the language in section 10(b) and Rule 10b-5 relating to fraud in connection with the purchase or sale of securities. Nonetheless, the district judge's additional comment that repos themselves are securities, if inaccurate, amounts to mere harmless error in this case. 24