Court Opinion

ID: 8994065
Source: CourtListenerOpinion
Date Created: 2022-11-27 12:26:20.417543+00
Date Added: 2024-06-11T17:10:59.500511
License: Public Domain

K.K. HALL, Circuit Judge,
concurring in part and dissenting in part:
I concur in the majority’s affirmance of the dismissal of appellants’ RICO claims. However, I agree with the district court that appellants did not state cognizable claims for securities fraud; I therefore dissent from the majority’s reversal of the dismissal of those claims.
A note secured by a residential mortgage is not a “security.” Reves v. Ernst & Young, 494 U.S. 56, 110 S.Ct. 945, 951, 108 L.Ed.2d 47 (1990). It is not magically transformed into a security when it is fraudulently sold. Which comes first, the security or the fraud? The majority seems to hold that it does not matter, but it must. Tafflin v. Levitt, 865 F.2d 595, 599 (4th Cir.1989) (the character of an instrument is determined when it is issued). Though it seems self-evident, the securities laws protect persons who intend to purchase securities. If a seller promises to deliver a security to a buyer, but delivers a widget, he has committed securities fraud. If, on the other hand, the seller promises a widget but delivers a security, he has committed widget fraud. I just cannot see how a person who has no intention of buying a security, and is not promised a security, can be the victim of securities fraud.
*457I would hold the plaintiffs to the fatal admissions in their complaint. No less than three times, in paragraphs 17, 27, and 28, the plaintiffs assert that they thought they were buying mortgage notes. The majority holds that, notwithstanding these assertions, evidence in the record shows that the plaintiffs might be able to prove otherwise; consequently, there is a sufficient issue of material fact to preclude summary judgment. This holding ignores Barwick v. Celotex Corp., 736 F.2d 946 (4th Cir.1984), in which this court held that a party cannot create a genuine issue of material fact by contradicting itself. Moreover, the complaint’s allegations are not inadvertent errors; FAMCO’s representation that investors were purchasing mortgage notes is the cornerstone of the fraud.
Except as noted above, I respectfully dissent.