In two recent decisions' construing the scope of the federal securities acts, the Supreme Court apparently has undertaken to alleviate some of the confusion and uncertainty surrounding the most fundamental question in securities law: the definition of"security" itself. Much of the existing confusion can be traced to earlier decisions of the Court that first implied, and later held,that the regulatory or offering context in which a particular transaction occurs could function to exclude the transaction from cover-age of the securities laws' anti-fraud provisions. This result could follow even though the transaction in question otherwise might satisfy the traditional Howey or "economic reality" test for determining the presence of a "security."
Because the Court has offered few clear guidelines for excluding a transaction in this manner, however, these earlier decisions,International Brotherhood of Teamsters v. Daniel and Marine Bank v. Weaver, have obscured, rather than clarified, the threshold question that must be addressed whenever the federal securities laws are invoked. In particular, the Court's analysis in Weaver has resulted in a great deal of uncertainty about the circumstances under which instruments clearly fitting within the statutory definition should be denied coverage and when other, more unusual,transactions similarly ought to be excluded...
Part II of this Article offers an overview of Supreme Court decisions construing the definition of "security" and concludes with an examination of the Court's analysis in Weaver. Part III explores the Court's use of the "context" clause preceding the statutory definition as a vehicle for expanding or contracting the securities acts' scope and analysis and the potential ramifications of that approach and focuses particular attention on the problems that arise from the Court's treatment of certificates of deposit.Part IV addresses the present state of "investment contract" analysis and assesses the continued validity of the Howey test for determining the presence of a security. Part V seeks to expose the Court's misunderstanding of congressional intent in its application of the securities laws. Finally, Part VI offers further evidence of the Court's deficiencies in this area by examining recent decisions involving two additional issues of increasing concern: tender offers and insider trading.
Marc I. Steinberg and William E. Kaulbach,
The Supreme Court and the Definition of "Security": The"Context" Clause, "Investment Contract" Analysis, and Their Ramifications,
40 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol40/iss3/1