Opinion ID: 32604
Heading Depth: 4
Heading Rank: 2

Heading: Nature of the certificates

Text: Tucker argues on appeal that Held also sought to testify that the certificates issued to the investors were not securities as defined by the Securities Exchange Act of 1934.22 Under the terms of the Act, a security does not include “currency or any note, draft, bill of exchange, or banker’s acceptance which has a maturity at the time of issuance of not exceeding nine months . . . .”23 Held would have opined that since the certificates at issue here were due immediately, they had a maturity date of less than nine months and therefore did not qualify as securities. Further, based on his expertise in the field of securities, Held would have testified that “generally companies take the position that notes that . . . have nine months or less of maturity and are similar to 22 15 U.S.C. § 78a. 23 15 U.S.C. § 78c(a)(10). 13 commercial transactions, . . . are generally not secured, not treated as securities for the purpose of registration with the SEC.” Finally, Held would have posited that the certificates were part of a secured transaction regulated by the Uniform Commercial Code and not the securities laws. The basis for this latter opinion was the filing of a UCC-1 financing statement on behalf of the three trusts, conferring upon each one an equal security interest in all of the assets of FFAC. Although Tucker raises this point of error on appeal, it is apparent from the record that he never intended to submit the information described above to the jury. Rather, Tucker agreed throughout the trial that Held’s proffer with regard to the issue of whether the certificates were securities was helpful only to the district court’s separate legal determination.24 Thus, it was not error for the district court to exclude evidence that Tucker never intended to have the jury consider in the first place. Moreover, even allowing that the district court somehow erred, Tucker has failed to show that Held’s testimony with regard to the nature of the certificates would have affected the outcome of the trial. The fact that the certificates sold to the investors were redeemable on demand does not automatically remove them from 24 At three points during the trial, Tucker asserted that whether the certificates were securities was a matter of law for the district court to decide. 14 classification as a security. In Reves v. Ernst & Young,25 The Supreme Court determined that a demand note could properly be considered a “security” regulated by the anti-fraud provisions. The Reves court rejected the notion that “legal formalisms”26 were controlling and instead found that all suspect items should be adjudged by the “family resemblance” approach.27 The Supreme Court in Reves also found the “fundamental essence of a ‘security’ to be its character as an ‘investment.’”28 Under the circumstances, notwithstanding Held’s opinion that certain qualities of the certificates favored the position that they were not securities, we agree with the district court’s legal conclusion that the facts 25 494 U.S. 56 (1990). 26 Id. at 61 (noting that “Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called”). 27 Pursuant to the “family resemblance” approach, a court must, after concluding that the disputed transaction does not strongly resemble a member of the non-security “family,” [f]irst . . . examine the transaction to assess the motivations that would prompt a reasonable seller and buyer to enter into it . . . Second, [the court must] examine the “plan of distribution” of the instrument . . . to determine whether it is an instrument in which there is “common trading for speculation or investment” . . . . Third, [the court must] examine the reasonable expectations of the investing public . . . . Finally, [the court must] examine whether some factor such as the existence of another regulatory scheme significantly reduces the risk of the instrument, thereby rendering application of the Securities Acts unnecessary. . . . Reves, 494 U.S. at 66-67 (citations and internal quotations omitted); see also Trust Co. of Louisiana v. N.N.P. Inc., 104 F.3d 1478 , 1489 (5th Cir.1997). 28 Reves, 494 U.S. at 68-69. 15 overwhelmingly supported a finding that the certificates were indeed securities.29 Additionally, the record reveals that Tucker was able to elicit the testimony regarding the UCC-1 financial statement through Patti Plunkett, FFAC’s former Chief Financial Officer. Plunkett testified about the existence of the UCC-1 filing and also explained that the trustee possessed a first lien position on all of the assets of FFAC for the benefit of the investors in the three trusts. Held’s testimony in this regard, which would have merely highlighted these same characteristics, was cumulative and unnecessary. In light of these matters, Tucker has not convinced us that the district court erred. Certainly, Tucker has not raised a plausible suspicion that the trier of fact would not have found him guilty beyond a reasonable doubt “with the additional evidence inserted.”30