Petition — Meyer v. Thomson & Mckinnon Auchincloss Kohlmeyer, Inc.

8 2 1 ] 9 5 esaaes Court, U.S.

FILED

No. NMAN14 (993

ALEXANDER L. STEVAS

In the Supreme Cqu open

OF THE

United States

Octoser TERM, 1982

Date F. Meyer,

on hehalf of himself and

all others similarly situated,

Petitioner,

VS.

Tuomson & McKinnon Avucuincioss KouuMeyer, Inc.,

UCA Systems, Inc., James L. Mier,

and Greraup P. Kooyers

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

KENNETH Scott

Professor of Law

COUNSEL OF RECORD

Stanford Law School

Stanford, California 94305

415/497-3070

Tuomas M. BorHm

2 North Second Street,

Suite 1400

San Jose, California 95113

408/998-4800

Attorneys for Petitioner

BOWNE OF SAN FRANCIGCO, INC. © ISO NINTH ST. © S&.F..CA 94103 © (415) 664-2300

QUESTION PRESENTED

Whether investment in a managed commodity futures

trading program based on a proprietary computer selection

formula and marketed to the general public through a

brokerage firm may involve the sale of an investment con-

tract, and therefore of a security, within the meaning of

and subject to the registration requirements of the Securi-

ties Act of 1933.

ii

TABLE OF CONTENTS

Re TRIES CA

IMI UII csi ccadlacanddbcndies li Sanieass

ET CITES Aiba BSR A AO en

Jurisdiction

Oe rr eee eee ee ee ee

IIIT ID GUNG i. .icnasocdssividsinanncnsnesetbasnedcosscuncoechaccsooss

Reasons for granting the petition 2.0.0.0...

Conclusion

iii

TABLE OF AUTHORITIES CITED

Cases

Page

Brodt v. Bache & Co., Inc., 595 F.2d 459 220000000... 5

Canfield v. Rapp & Sons, Inc., 654 F.2d 459 000000000... 9,13

Chapman v. Rudd Paint and Varnish Co., 409 F.2d

SITU "iossnniesdesadiacabiessosouboessimeichcadeccdpadbeasanilsiatieeiddapadronslawcetsietiotyatiges 9

O.N.S. Enterprises, Inc. v. G. & G. Enterprises, Inc.,

508 F.2d 1354 (7th Cir.), cert. denied, 423 U.S. 825

SIP TNE ict niesereeiodheol casincenteiadoaslat tip litiakilantasigmennsetiobbapeibile 8

Curran v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,

622 F.2d 216 (6th Cir. 1980), aff’d on other grounds,

ciate is Me ff te | 8) Re

Exchange National Bank of Chicago v. Touche Ross

By Se, GE a NO iste ictl cic thrsiipdscecicigipatliceciatntvdsemneneeth 8

Golden v. Garafalo, 687 F.2d 1139 000.20... eeeeececeeceeeeeee 9

Great Western Bank & Trust v. Kotz, 532 F.2d 1262...... 8

Grenader v. Spits, 5387 F.2d, 612 ..................c.-cecsssecsssecsseeees 11

Hirk v. Agri-Research Council, Inc., 561 F.2d 96 .......... 5

International Brotherhood of Teamsters v. Daniel,

Be SAR SES ba SR eae ee 9,12

Lino v. City Investing Co., 487 F.2d 689.000.0002 8

Marine Bank v. Weaver, ...... RS a a 9, 12, 13

Martin v. T. V. Tempo, Inc., 628 F.2d 887 ...................... 9

Mordaunt v. Incomco, 686 F.2d 815 20000... ececceeeeeeeeeee 5

SEC v. Continental Commodities Corp., 497 F.2d

I iaicrecetcepcrintischesctbinntinlancbaletandidadi Uh dart hapcomsbebcinaes essataiied 4,5

SEC v. Glenn W. Turner Enterprises, Inc., 474 F.2d

NS ORITSS SIS CARIES, RIM es: BR Cr ES Se Se YO 9

SEC v. Koskot Interplanetary, 497 F.2d 473 ....0.00000000....... 5

SEC v. W. J. Howey Co., 328 U.S. 293 ........ 4, 6, 7,10, 11,13

United Housing Foundation, Inc. v. Forman, 421 U.S.

837 hivediecichlisabingberneniocsedetaiie 9,11

United States v. Herr, 338 F.2d 607 0.000000. 9

Wasnovic v. Chicago Board of Trade, 352 F.Supp.

1066, aff’d mem., 491 F.2d 752, cert. denied, 416 U.S.

iv

TasB.e or AuTHOorITIES CITED

Statutes and Regulations

Page

Securities Act of 1933 (15 U.S.C.):

STEIN scnicoainucteonaceeheashisvesbuipaaulceedsjassnreseidioannsnasaguons 2

ND wiiblisesecccsttbticitrereccedeecsecisunsopcsecbotlcertbonis 12

IE idl cleceavudeticiassodcimecnscnadnotoshiniinbutttes 12

SAINTE 6--citncssastbshivcs-dhiencinesrebandiedindbianivvenintesehauiedate 13

RIND HII i ptcinicsceduihstadistdicettesanetoaiiodidiacsssscsevegiadianas ‘om a

IN NN i cad ease macitonenaceusnbdeninitnnsinile 10

RI SOI IS ic RIPON aca CP PT 2

SIE BO ls cxcacatonssinsaig lit lenpieceesestili adit tbeasdbinetitMienootans 10

NONE FFE SbitreicscssalerosinstnisceAkigcahitehabasphcdie A ltiteadbisuis 10

I I i ls cc nntniekinekincen ph ncegeadibtectetgetonsbadnthipees 10

is ER EE ee 7 ene 5 are 10

ENE UR et 5: Se a 10

ge NABER IRE, SS | + ikea EN a nee Se Oe 10

Miscellaneous

H.R. Rep. No. 85, 73d Cong., Ist Sess., 11 (1933) ............ 11

Schneider, “The Elusive Definition of a ‘Security’ ”,

No MR Ns NE AID prircpenenesencesttinscsnvssieceivansnecsses 9

W. Sharpe, Investments ch. 6 (2d ed, 1981) .................... 12

No.

In the Supreme Court

OF THE

United States

October Term, 1982

Dae F. Meyer,

on behalf of himself and

all others similarly situated,

Petitioner,

vs.

Tuomson & McKinnon Avucuincioss Konumeyer, Inc.,

UCA Systems, Inc., James L. Miter,

and Geravp P. Kooyrrs

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Dale F. Meyer, on behalf of himself and all others

similarly situated, petitions for a writ of certiorari to re-

view the judgment of the United States Court of Appeals

for the Ninth Circuit in this case.

OPINIONS BELOW

The opinion of the District Court for the Northern Dis-

trict of California (App. A) was not published. The

opinion of the court of appeals (App. B) is reported

at 686 F.2d 818.

2

STATUTES INVOLVED

The relevant provisions of Sections 2 and 5 of the Securi-

ties Act of 1933 (15 U.S.C. §§ 77b(1) and 77e(c)) are set

forth in the Appendix (App. E).

JURISDICTION

The judgment of the court of appeals was entered on

September 9, 1982. (App. C). By order dated November

17, 1982, Mr. Justice Rehnquist extended the time within

which petitioner could file a petition for writ of certiorari

to and including January 14, 1983. (App. D).

STATEMENT OF THE CASE

This case was decided on undisputed facts:

Respondent Thomson McKinnon Securities, Inc., a Dela-

ware corporation with its principal place of business in

New York City, engages in business as a securities broker-

dealer and commodities trader. Respondent James L. Miller

was employed by Thomson McKinnon in its Palo Alto,

California office as an account executive having direct con-

tact with the public (R. 36, interrogatory # 3).

Respondent UCA Systems, Inc. is a California corpo-

ration wholly owned by respondent Gerald P. Kooyers

(R. 24, interrogatories # 1(a) and 3). UCA developed a

systematic, computerized scheme for trading commodity

futures.

Together, respondents publicly offered and sold invest-

ments in managed commodity futures trading accounts.

Petitioner, a high school janitor making $600.00 per month,

was persuaded by Thomson McKinnon, through Miller, to

*“R.” refers to the original record filed in the court of appeals.

3

invest some $40,000 in respondents’ scheme whereby the

funds would be deposited with Thomson McKinnon, who

would execute the trades based on the computerized signals

generated by UCA’s selection formula. Pursuant to re-

spondents’ scheme, UCA would “. . . cause commodity

contracts to be bought, sold, sold short, and spread, and

will have exclusive authority to issue all other necessary

instructions to the broker.” (R. 59, deposition of Meyer,

Vol. 2, Ex. 6, p. 12 72.)

Thomson McKinnon was paid commissions on a per trade

basis and earned $1,848 in commissions in less than three

months (R. 24, Ex. A to UCA’s answers, etc., to plaintiff’s

first set of interrogatories). UCA determined the trades

in all accounts it was managing by use of the “Statistical

Qualifier System” it had developed and was paid a fee of

6% of the managed assets every three months, or 24%

per year (R. 59, deposition of Meyer, Vol. 2, Ex. 6, p. 12

174, 8). All the accounts managed by UCA were traded

uniformly based on these computerized signals. In each

account, the investor remained passive.

Respondents describe their methodology as follows:

The Statistical Qualifier System is a unique approach

for the speculative trading of commodity futures. It is

based on the premise that although commodity price

movements tend to be largely random in nature, sig-

nificant trends originate in these random action pat-

terns, and can be identified as they emerge. Since,

fundamentally, economic pressures are the motivating

forces behind commodity price movements in the long

run, a statistical discriminator is used to filter out the

signals of random action, and identify significant price

movements. [R. 59, deposition of Meyer, Vol. 2, Ex.

6, p. 6.)

4

REASONS FOR GRANTING THE PETITION

The decision below, holding that a managed commodity

futures trading account is as a matter of law not a “se-

curity” under the Securities Act of 1933, squarely conflicts

with SEC v. Continental Commodities Corp., 497 F.2d 516

(5th Cir. 1974), and is not consistent with the conclusion

of this Court in SEC v. W. J. Howey Co., 328 U.S. 293

(1946). The definition of a security for purposes of federal

securities law, in this and other contexts, has occasioned

increasing conflict and confusion among the lower federal

courts, and should be clarified by this Court in the interest

of the proper anc uniform application of the federal se-

curities laws and the removal of unnecessary litigation

from the federal courts. Such a clarification, drawing on

the insights of modern finance theory, is clearly feasible,

and will provide the badly needed guidance this important

question warrants.

1. As formulated by this Court in Howey, the test of

an investment contract is “whether the scheme involves

an investment of money in a common enterprise with

profits to come solely with the efforts of others” (328 U.S.

at 301). Not surprisingly, every element of that definition

has subsequently received close scrutiny and elaboration.

The only element that the court below found lacking in the

instant case was the existence of a common enterprise.

Two lines of approach to the definition of a common

enterprise have evolved in the cases, Some courts have

demanded that the scheme exhibit “horizontal common-

ality”—a pooling of the capital contributed by investors in

the way the venture is operated, usually accompanied by a

pro-rata sharing of the residual profits (if an equity in-

5

vestment) or promised return (if debt). See, e.g., Wasno-

vic v. Chicago Board of Trade, 352 F.Supp. 1066 (M.D.Pa.

1972), aff’d mem., 491 F.2d 752 (3d Cir. 1973), cert. denied,

416 U.S. 994 (1974) ; Curran v. Merrill Lynch, Pierce, Fen-

ner & Smith, Inc., 622 F.2d 216 (6th Cir. 1980), aff’d on

other grounds, ...... US. ......, 102 S.Ct. 1825 (1982); Hirk

v. Agri-Research Council, Inc., 561 F.2d 96 (7th Cir. 1977).

The typical business corporation issuing common stock or

debentures clearly meets a horizontal commonality test.

But other courts have held that, in the absence of such

a pooling, the common enterprise requirement may be

satisfied by something else: “vertical commonality”, in the

sense of some species of common venture between the in-

vestors and the promoter in which different investors may

be differently affected. There is disagreement, however,

over the nature of the relationship between promoter and

investor which is needed, The Fifth Circuit looks to whether

the outcomes for the individual investors, though they

may vary in some respects and are not pro-rata equiva-

lents, nonetheless have in common the fact that they are

essentially determined by the promoter’s expertise and

efforts which are applied uniformly to all accounts. See

SEC v. Koscot Interplanetary, 497 F.2d 473, 478 (5th Cir.

1974); SEC v. Continental Commodities Corp., 497 F.2d

516, 522 (5th Cir. 1974). The Ninth Circuit, on the other

hand, requires that, to have a common enterprise, the pro-

moter must share directly in the individual investors’ prof-

its and losses; it is not enough that the promoter’s business

and income will be affected generally by how well his in-

vestor clients do. See Brodt v. Bache & Co., Inc., 595 F.2d

459 (9th Cir. 1978); Mordaunt v. Incomco, 686 F.2d 815

(9th Cir. 1982).

6

As applied to managed commodity futures trading ac-

counts, these divergent views have led to their being held

securities by the Fifth Circuit because “the »uccess of the

trading enterprise as a whole and customer investments

individually is contingent upon the sagacious investment

counseling of Continental Commodities” (497 F.2d at 522),

and being held not to be securities by the Ninth Circuit

because “Bache could reap large commissions for itself

and be characterized as successful, while the individual

accounts could be wiped out” (595 F.2d at 461).

Not only does the Ninth Circuit’s view, as applied once

more to sustain the dismissal of petitioner’s complaint,

conflict with the holding of the Fifth Circuit, it is also

inconsistent with the basic Howey decision of this Court.

In Howey, an orchard operator sold off title to individual

groves of citrus trees to individual investors, offering at

the same time a servicing contract to tend the groves and

harvest and market the fruit; the arrangement was held

to constitute an investment contract, and hence the sale of

an unregistered security. The stipulated facts in Howey,

set forth in the opinion of court of appeals below, make it

clear that this Court’s finding of a common enterprise was

not predicated on the existence of what is now termed

“horizontal” commonality, nor on “vertical” commonality

by the Ninth Circuit’s standard, but instead on a reading

consistent with the Fifth Circuit’s interpretation. SEC v.

W. J. Howey Co., 151 F.2d 714 (5th Cir. 1945).

To quote from the stipulated facts: “In the care of each

grove, as in the yield of the fruit, the cost of the care

and the proceeds of [the sale of] the fruit may be, and are,

definitely and distinctly accounted for with respect to the

specific property owned by the individual.” (151: F.2d at

7

716 n.5). The point was further highlighted in the opinion

text: “Here it is quite clear that each purchaser looked for

the income from his investment to the fruitage of his own

grove and not to the fruitage of the groves as a whole. It

is quite clear, too, that each purchaser’s income was in no

sense dependent upon the purchase or development of other

tracts than his own except in the sense that as grove own-

ers generally prospered, each owner of a grove would.”

(151 F.2d at 717).

In Howey, it is evident, investors did not have an un-

divided or pooled interest in the residual profits of the

entire orchard; horizontal commonality was lacking. Like-

wise, the promoter would derive income from servicing

fees and marketing charges, regardless of whether the

grove owner made a lot of money or none at all; vertical

commonality by the Ninth Circuit’s test was lacking. But

this Court held that the overall management supplied by

the promoter was necessary to the feasibility of the opera-

tion and sufficient (in conjunction with the other elements)

to constitute a common enterprise.

In sum, the court of appeals’ decision in this case is in

conflict with the holdings of the Fifth Cireuit and with the

foundation for this Court’s decision in Howey. Respon-

dents have together publicly offered opportunities to in-

vest in commodity trading accounts, uniformly managed in

accordance with a unique and vaunted computer trading

program; there was a common enterprise, in the Howey

sense. This Court should resolve the conflict among the

circuits, and dispel the confusion over the meaning of the

common enterprise requirement, which goes to the heart of

the most basic concept in the application of the federal

securities laws.

8

2. Even more fundamentally, there is pressing need for

a reconsideration and clarification of the “security” defi-

nition as a whole. Lower courts have exhibited substantial

uncertainty and conflict over the proper scope of coverage

of the federal securities laws, outside of the central core

area of a business corporation issuing stock or debt to

the investing public. Some examples follow.

To determine whether a loan by a bank or other insti-

tutional lender involves the purchase of a security (a prom-

issory note) from the borrower within the purview of

federal law and its anti-fraud sections, courts have con-

cocted a whole array of tests. Some attempt to dischoto-

mize the note cases into either commercial or investment

transactions, with only the latter being defined as secu-

rities. See, e.g., Lino v. City Investing Co., 487 F.2d 689

(3d Cir. 1973); C.N.S. Enterprises, Inc. v. G. & G. Enter-

prises, Inc., 508 F.2d 1354 (7th Cir.), cert. denied, 423 U.S.

825 (1975). The Second Circuit came up with a short and

rather ad hoc list of note transactions which it felt ought

not to be covered, and suggested that the test in other

transactions should be whether they bear a “strong family

resemblance” to those on the list. Exchange National Bank

of Chicago v. Touche Ross & Co., 544 F.2d 1126 (2d Cir.

1976). The Ninth Circuit held that the ultimate inquiry

is whether the lender/investor contributed “risk capital”

subject to the borrower’s managerial efforts, and enumer-

ated at least six factors to be considered. Great Western

Bank & Trust v. Kotz, 5382 F.2d 1252 (9th Cir. 1976).

When a business is sold in the form of the sale of

100% of the common stock by a small group of old owners

to a small group of new owners, the courts are divided

over the applicability of the federal securities laws. The

9

Seventh Circuit has held that the transaction does not

constitute the sale of “securities”, Canfield v. Rapp & Sons,

Tnc., 654 F.2d 459 (7th Cir. 1981), while the Second Cireuit

has held that it does, Golden v. Garafalo, 687 F.2d 1189 (2d

Cir, 1982).

Franchising and distributorship agreements have been

held to be securities in some cases. See, e.g., United States

v. Herr, 338 F.2d 607 (7th Cir. 1964); SEC v, Glenn W.

Turner Enterprises, Inc., 474 F.2d 476 (9th Cir.), cert.

denied, 414 U.S, 821 (1973). They have been held not to

be securities in others. See, e.g., Chapman v. Rudd Paint

and Varnish Co., 409 F.2d 635 (9th Cir. 1969); Martin v.

T. V. Tempo, Inc., 628 F.2d 887 (5th Cir. 1980). The dis-

tinction apparently turns on the degree of active partici-

pation by the purchaser, and on whether the court per-

ceives the existence of a pyramid sales fraud.

Other areas in which there are decisions of varying

tenor involve the sale of some form of personal property

accompanied by a servicing or management arrangement,

the sale of real estate lots or apartment units, and the sale

of memberships in recreational facilities. Decisions by

this Court were required to reduce or end conflicts over

the status of employee jx. on plans, /nternational Broth-

erhood of Teamsters v. Dawel, 489 U.S, 551 (1979), bank

certificates of deposit, Marine Bank v. Weaver, ...... US.

oy LO2 8.Ct, 1220 (1982), and cooperative apartments,

United Housing Foundation, Inc. v. Forman, 421 U.S. 837

(1975). The field is surveyed in all its contradictory com-

plexity in C, Schneider, “The Elusive Definition of a

‘Security’ ”, 14 Rev. Sec. Reg. 981 (1981).

10

The results in these cases can be understood and recon-

ciled in some, though not all, instances, but the rationales

by which they are justified have become numerous and

inconsistent, leaving their extension to new situations in

considerable doubt. Lower courts have sometimes endeav-

ored to found their decisions on a mere linguistic parsing

of the Howey formula, and the whole exercise has taken on

an increasingly arbitrary and confusing cast.

3. A clarification by this Court is practicable, and

this case is an appropriate vehicle for articulating an ap-

proach possessing greater coherence and affording greater

guidance.

A return to statutory fundamentals is overdue, The Secu-

rities Act of 1933 was intended to improve the functioning

of the public capital markets; it adopted two strategies to

that end. The registration sections of the Act (4§§ 5-8, 10,

11 and 12(1)), which are in issue here, created an elaborate

(and expensive) disclosure system for the sale of securities

to the public by the firm and its controlling insiders, The

anti-fraud sections (§§ 12(2) and 17) established a federal

standard, broader than typical state common law misrep-

resentation and deceit actions, for securities sales generally.

By enacting the registration provisions of the 1933 Act,

Congress made the judgment that the value of the infor-

mation required to be disclosed to the publie investing in

new securities issued by business firms would typically

justify the substantial compliance costs entailed, But as

the application of the Act shifts from the public capital

market for corporate stocks and bonds to more unusual

situations and instruments, the courts are necessarily being

asked to decide whether the premises of that judgment

remain valid in the marginal cases.

11

To make such a decision intelligently, a court must

be sensitive to the factors that bear on the value of the

information generated by the registration statement ma-

chinery and on the burden of compliance. More than a

mechanical recitation of the Howey formula is required

for such an analysis. Nor is a simple presumption of broad

coverage an adequate substitute; that assumes that dis-

closure requirements are costless or that Congress made

an unlimited judgment as to their suitability. Neither as-

sumption is true,

In short, in cases outside “the ordinary concept of a

security”,* the definition turns on an assessment of the

value of disclosure and the cost burden entailed, in the

context of the particular investment involved, The form of

the instrument by itself cannot be determinative, as this

Court has held.’

In making that assessment, modern finance theory can

be quite helpful, Capital investments within the purview

of the 1933 Act are those made in order to obtain a future

(usually monetary) return, as distinguished from consump-

tion investments which are made to obtain and consume

a stream of services or satisfactions, This basic distinction

was underscored by United Housing Foundation, Ince, v.

Forman, supra, and Grenader v, Spite, 587 F.2d 612 (2d

Cir, 1976).

The expected return from an investment, finance theory

holds, is directly proportionate to the expected risk, See,

"H.R, Rep. No, 85, 73d Cong,, Ist Sess., 11 (1933); quoted in

United Housing Foundation, Inc. v, Forman, 421 U.S, 837, 851

(1975).

"Ibid.

12

e.g., W. Sharpe, Investments ch. 6 (2d ed. 1981). Risk can

be broken down into constituent elements, such as business

risk (arising from factors like the variability of demand,

production uncertainties, the course of the economy and

the performance of management) and financial risk (aris-

ing from the debt/equity leverage of the firm). Informa-

tion and disclosure are of value only as they contribute to

a more accurate estimation of the risk and return. Thus

the degree of risk of an investment is a necessary in-

gredient in determining whether it should be subject to the

registration disclosure system of the 1933 Act. If an in-

vestment is riskless, or of very low risk, the information

contained in a registration statement and prospectus

might be extensive and detailed, but on average its value

would not warrant the costs of furnishing it. That percep-

tion is reflected in the exemption sections of the 1933 Act,

which exclude from the disclosure machinery investments

such as government obligations‘ and commercial paper.’

It is also reflected in the recent decision of this court that

a bank certificate of deposit, because of government regu-

lation and even more importantly because of federal de-

posit insurance, is not to be considered a security. Marine

Bank v. Weaver, supra; see also International Brother-

hood of Teamsters v. Daniel, supra.

Further, when control over the use of the capital assets

being invested in is directly transferred to the purchaser,

the probable value of registration statement disclosure is

at least reduced. The element of management disclosure

is eliminated, and the purchaser may be generally pre-

sumed to be better informed than the usual investor about

*§ 3(a)(2), 15 U.S.C. § 77c(a) (2).

*§ 3(a)(3), 15 U.S.C. § 77¢(a)(3).

13

the business risks and returns to be expected, so that the

added value of the information in a registration statement

is probably low. Cf. Canfield v. Rapp & Sons, Inc., 654 F.2d

459 (7th Cir. 1981).

There are a number of other considerations that bear

on a determination of the value of registration statement

disclosure, but this petition is not the place for an ex-

tended discussion. Turning briefly to the cost side, the

relevant factors involve such matters as the homogeneity

of the business, the size of the investment, the number of

purchasers or transactions to be anticipated, and the

availability of alternative sources of information. The rela-

tive cost of subjecting to 1933 Act registration a single,

directly negotiated, small transaction, for example, is quite

high. That perception is reflected in the small offering and

private placement exemptions of the Act® and in this

Court’s decision on the guarantee agreement aspect of

Marine Bank v. Weaver, supra.

This has not been an exhaustive delineation of a more

coherent approach to the recurrent problem of defining a

security. But this sketch is intended to show that such a

treatment of the question is both achievable and important.

4. To summarize in conclusion, a “security” for pur-

poses of the Securities Act of 1933 is not a real world

object; it is, in the marginal cases, a judgment that the

premises of the Act still hold and the value of the required

disclosure would warrant its costs. That judgment depends

on the interplay of a number of factors, which the Howey

formula reflects but does not fully express.

*§§ 3(b) and 4(2), 15 U.S.C. §§ 77¢(b) and d(2).

14

Petitioner submits that the decision of the court below

conflicts with the decisions of the Fifth Circuit and of this

Court, and will lead to inappropriate determinations of

the applicability of the federal securities laws. Petitioner

also urges that a re-examination and clarification of the

security definition, in the light of modern finance theory,

is both timely and feasible.

CONCLUSION

The petition for writ of certiorari should be granted.

Respectfully submitted,

Kennetau Scorr

Txomas M. Borum

Attorneys for Petitioner

(Appendices Follow)