Document: 389 U.S. 332 88 S.Ct. 548 19 L.Ed.2d 564 Alexander TCHEREPNIN et al., Petitioners,v.Joseph E. KNIGHT al. No. 104. Argued Nov. 13, 1967. Decided Dec. 18, Arnold I. Shure, Chicago, Ill., for petitioners. Philip A. Loomis, Jr., Washington, D.C., the United States, as amicus curiae. Charles J. O'Laughlin, and Stuart D. Perlman, New York City, respondents. Opinion of Court by Mr. Chief Justice WARREN announced BRENNAN. 1 The narrow question decision in this case is whether a withdrawable capital share an Illinois savings loan association 'security' within meaning Securities Exchange Act 1934, 48 Stat. 881, 15 U.S.C. § 78a seq. 2 petitioners are number individuals holding shares City Savings Association corporation doing business under Loan Act.1 On July 24, 1964, they filed class action2 States District Northern Illinois, alleging that sales to them were void 29(b) 78cc(b), asking be rescinded. Named defendants complaint Savings, its officers directors, two state officials who had taken custody Association,3 three named liquidators Association's shareholders voting voluntary plan liquidation.4 alleged purchased securities 3(a)(10) Act,5 such reliance upon printed solicitations received from through mails, contained false misleading statements violation 10(b) Act6 Rule 10b—5 adopted thereunder Commission.7 More specifically, mailed portrayed financially strong institution desirable investments. But failed disclose, inter alia, was controlled individual been convicted mail fraud involving associations, denied federal insurance accounts because unsafe financial policies, forced restrict withdrawals holders previously shares. 3 respondents motions dismiss on ground cause action petitioners' not Act. dismiss, ruling fell Act's definition securities. However, recognizing 'involves controlling law which there substantial difference opinion,' certified order interlocutory appeal Appeals Seventh Circuit 28 1292(b). Appeals, with one judge dissenting, agreed issued did fit Consequently, it ruled without jurisdiction case, remanded instructions complaint. 371 F.2d 374. Because presents important concerning scope Act, we granted certiorari. 387 941, 87 2076, 18 l.Ed.2d 1326. We disagree construction placed reverse judgment. 4 Section 1934 provides: 5 '3. (a) When used title, unless context otherwise requires— 6 '(10) term means any note, stock, treasury bond, debenture, certificate interest or participation profit-sharing agreement oil, gas, other mineral royalty lease, collateral-trust certificate, preorganization subscription, transferable share, investment contract, voting-trust deposit, security, general, instrument commonly known 'security'; in, temporary interim for, receipt warrant right subscribe purchase, foregoing; but shall include currency draft, bill exchange, banker's acceptance has maturity at time issuance exceeding nine months, exclusive days grace, renewal thereof likewise limited.' 7 This first opportunity construe statutory provision. do start blank slate. 1933 (48 74, amended) contains security8 virtually identical aided our task prior decisions have considered security Act.9 In addition, guided familiar canon remedial legislation should construed broadly effectuate purposes. quite clearly falls into category legislation.10 One central purposes protect investors requirement full disclosure issuers securities, necessarily determines classes investments will receive protections. Finally, reminded that, searching word form disregarded substance emphasis economic reality. S.E.C. v. W. Howey Co., 328 293, 298, 66 1100, 1102, 90 L.Ed. 1244 (1946). 8 Savings' authority issue conferred look legal character imparted those statute. methods associations authorized raise capital.11 represented exclusively Each holder becomes member association12 entitled 'the vote each hundred dollars aggregate withdrawal value accounts, fraction dollars.'13 fixed rate return. Rather, dividends declared association's board directors based profits.14 power make restricted statute.15 While nonnegotiable subject Article Uniform Commercial Code,16 can transferred 'by written assignment accompanied delivery appropriate account book.'17 9 gives held petitioners, must govern having constitute Act.18 Even casual reading reveals Congress intend adopt restrictive concept defining term.19 As observed respect 2(1) 1933, reach does stop obvious commonplace.' C. M. Joiner Leasing Corp., 320 344, 351, 64 120, 123, (1943). both Acts, 'embodies flexible rather than static principle, capable adaptation meet countless variable schemes devised seek use money others promise profits.' supra, 299, 1103. little difficulty fitting expansive security. Of several types instruments designated most closely resemble contracts. 'The test (for contract) scheme involves common enterprise profits come solely efforts others.' Id., 301, 1104. Petitioners participants enterprise—a money-lending operation dependent success skill management making sound loans. ties payment apportionment profits,20 expect return their only if shows profit. If fails show profit due lack honesty managers, no dividends. Similarly, amount tied directly makes year year. Clearly, then, essential attributes contracts defined Howey.21 need rest conclusion alone. 'Instruments may included (the Act's) definitions, matter law, face answer name description.' 123. well descriptive terms 3(a) (10). For example, viewed 'certificate(s) agreement.' evidenced certificate,22 contingent profits. These same factors 'stock' 3(a)(10). 'transferable share(s)' since '(t)he transfer his rights therein absolutely conditionally person eligible hold same.'23 10 Our reinforced legislative history legislation. considering representatives Building League appeared before House Senate committees plead League's members. spokesmen asked exemption registration requirements building argued cost complying whenever new would prohibitive. emphatically endorsed coverage antifraud provisions.24 Thus, Morton Bodfish, Executive Manager, told Committee Interstate Foreign Commerce: 11 'When saves association, he purchases nearly all $8,000,000,000 assets * *. 12 practical difficulties register every obvious.25 13 '(W)e approve vigorously willing section *.26 14 'Now, gentlemen, want you leave sections there, just are, so (if) developed connection institutions anywhere loan, effective operative.'27 responded appeals interests including 3(a)(5) '(a)ny homestead similar *.'28 It seems apparent sought general brought purview Act.29 16 passed approved earlier enactment. silent shares, Report asserts intended 'substantially (that contained) 1933.' S.Rep.No. 792, 73d Cong., 2d Sess., (1934). when amended 1964 provide certain equity provided 'any *.' 78l(g)(2)(C). pattern Act.30 17 view Appeals' product misplaced emphasis. After reviewing 3(a)(10), stated type now us, covered definition, 'instrument 'security.'" F.2d, 376. read words 'security" limitation definition. This, course, contrary where rejected respondents' invitation 'constrict more substantially specific follow.' U.S., 350, S.Ct., cannot agree analysis led conclude 'security." stressed unlimited amounts preemptive rights. Yet true mutual funds, doubt also emphasized made law. simply reflects fact usual medium trading markets. said found Joiner.31 noted further inspect books records association. Inspection nature, however, universally attaches corporate shares.32 short, various highlighted concluding serve distinguish among different They not, standing alone, particular thought highly significant 'evidence indebtedness' appears omitted omission significance case. thing, cover flowed 'relationship much debtor-creditor investment.' 377. That assertion, overlooks become creditor even files application withdrawal.33 reason provides basis exclude coverage. policy laws 'were aftermath great disaster 1929. concerned speculation fluctuating traded exchanges over-the-counter markets.' statement suggests, Court, normally fluctuate over-the-counter. accuracy assertion open question.34 But, important, irrelevant us. Howey, 'it immaterial speculative nonspeculative.' 20 Policy considerations lead us these investor protections afforded fully following observations Judge Cummings dissent below: 21 less able themselves purchasers orange groves Howey. (petitioners) rely completely choose suitable properties mortgage members widely scattered. Many probably invested safer stocks. constantly seeking advertising SEC's present tender expert services especially beneficial would-be shield against unscrupulous unqualified promoters.' 384—385. 22 declare successful suit rescission, gain unfair advantage over distribution limited Association, liquidation. argument, best, non sequitur. posture priority claims Savings. threshold court petitioners—a turns 1934. totally suit, might superior Association. 23 Reversed. 24 MARSHALL took part consideration Ill.Rev.Stat., c. 32, §§ 701—944. identified 'more 5,000 (who) (i.e., shares) 23, 1959 total 'between fifteen twenty million dollars.' acted 848. record disclose precise placing custody. brief suggest victim mismanagement major proportions. liquidation formally four after nominated filing complaint, election foregone conclusion. Voluntary Art. 9. 78c(a)(10). 78j(b). C.F.R. 240.10b—5. '2. '(1) evidence indebtedness, agreement, investment, deposit fractional undivided rights, or, 905. Benefit Life Ins. 202, 1557, 673 (1967); Variable Annuity 359 65, 79 618, 640 (1959); (1946); lengthy publicized investigation Banking Currency stock market practices reasons crash October See Investment Advisors 1940, Geo.Wash.L.Rev. 214, 216—217. (1960). (shares accounts) permanent reserve 761(a). 'Permanent secondary out losses paid available reserves exhausted 763. 741(a)(1). 742(d)(2). borrower automatically id., 741(a)(2), vote, 742(d)(4). 778(c). required apportion least annually. 773. 768(c). 768(b). Cf. 69, 620, 640. '(T)he (in defined) sufficiently broad many commercial world fall ordinary security.' H.R.Rep. 85, 1st (1933). 778. refused apply entering 'profit derived loans association.' analysis, places too anyone borrows 741(a)(2). make. 792—792.10. 768(a). Hearings H.R. 4314 Commerce, 70—75 (1933) (testimony League); S. 875 Currency, 50 54 Clinton James, Chairman, Federal Legislative League). 25 4314, 71. 26 73. 27 74. 77c(a)(5). 29 expressed changed years. League, Membership Bulletin, comments Court's hear case: 'This earth shaking implications people assume. place always assumed provisions Acts relating practices, etc. Regardless how goes mean involved SEC past. rules typical transactions.' June 28, 1967, p. 15. 30 take effect, Congress' what Professor Loss calls 'supererogation.' Loss, Regulation 497 (2d ed. 1961). argument analogy drew between exempted provisions, analogy, inappropriate. specifically 'insurance policies regarded act,' (1933), supererogation. n. 4, 623, particularly expected provisions. 31 Hovey, Joiner, oil leases 32 Baker & Cary, Cases Materials Corporations 739 741 (3d 1958). 33 773(f) 34 SEC, curiae submitted points 7,8, 12, passbooks being Cleveland Stock shortly passage. repeatedly enforced brokers dealers whose includes solicitation funds associations. Brief 22—24.

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