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Securities Regulations

SECURITIES REGULATION – Professor Guttentag – Spring 2014

This outline is formatted to fit onto the 10” X 7” pages of the 2013 Securities Reg Supplement allowed into the exam. Each page fits onto one of the blank pages spread throughout the book, including inside covers.  (It might not fit if the book is formatted differently in its next edition.)  Because Prof. Guttentag requires handwritten notes in the book, this will just give you an idea how much can fit onto each page so you can gauge how small you have to write to include this level of detail.  Charts can fit at ends of code sections with half-blank pages (e.g. the signature page of Form S-K). What is not included here is a summary of each case, with lower circuit rulings and SCOTUS dissents, although the holdings are included throughout the outline along with appropriate code sections.



  • SECURITIES ACT of 1933 – Created after 1929 stock market crash. Regulates primary transactions:
    • Private placements, initial public offerings, seasoned public offerings, and other offerings from issuer
  • SECURITIES EXCHANGE ACT of 1934 – bc Great Depression. Regulates secondary mkt transactions incl:
    • Stock exchanges, broker-dealers, proxy rules and tender offers, insider trades, NOT derivatives
  • “Amendments” to the above Acts
    • PRIVATE SECURITIES LITIGATION REFORM ACT of 1995 – harder to file private federal COAs
    • SARBANES-OXLEY ACT of 2002 – post Enron / WorldCom fiascos. Changes corporate governance
    • DODD-FRANK ACT of 2010 – post 2008 financial collapse
    • JOBS ACTof 2012 – big exemptions for businesses. Legalized crowdfunding.


  • BLUE SKY LAWS – state laws largely pre-empted by ’33 and ’34 Acts, but exceptions in Rule 504 of Reg D

WHAT IS A SECURITY?  –  Covered under securities law, so COAs available that require less proof and in federal court

Statutory definition incl 3 categories of securities:                                                                                                    §2(a)(1)

  • Instruments commonly known as securities. (Instrument is labeled a stock, bond, debenture, etc.)
  • Investment contracts (Instrument contains 4 Howey elements.)
  • Instruments specified by the Act (e.g. “fractional undivided interest in oil, gas, or other mineral rights”)

WHAT IS NOT A SECURITY?  –  Not under securities law, so Ps would have to bring tort or K claim in state ct (or class)

  • Not listed in statutory definition, construed as investment contract , or excluded bc “context otherwise requires”
  • Crowdfunding (bc no expectation of profit)
  • Service contract – bc not an investment. Paying for service. (ex: standalone contract to harvest fruit in Howey)
  • Real estate contract (unless construed as an investment contract as in Howey)
  • Timeshare (bc a purchase for consumption of an experience
  • Purchase of a business (bc no common enterprise. One person buys it.)
  • Transaction in which investors have to participate in work, make suggestions


IF LISTED IN DEFINITION OF SECURITY, then go straight to whether the security needs to be registered.

IF LABELED as a COMMONLY KNOWN SECURITY, then see if has characteristics of label. It’s a balancing test.

  • If YES CHARACTERISTICS OF LABEL, then it’s a security. Go to analysis of whether it must be registered.
    • STOCK – 1) Dividends depend on profits, 2) transferable, 3) Voting rights, 4) Appreciable Value
      • United Housing v Forman – Shares NOT “stock:” no dividends, non-transferable & no appreciation bc sold back to co-op for purchase price, voting rights not allocated by share
    • BOND (note) – Does it look like a note?

If YES, keep going because NOT all correctly labeled notes are securities, so check maturity:

  • Maturity < 9 mos
    • Commercial paper = NOT a SECURITY                                                  3(a)(3)
      • Of a type not bought by general public, e.g. $1 million face value
      • Must finance current [short-term] transactions, including operating expenses or current assets (such as receivables and inventories)
      • Can’t finance fixed assets (land, buildings, equip, long-term ops)
    • If NOT commercial paper but < 9 mos. (“demand note”) UNKNOWN if security
      • but demand notes are transacted w/co itself, so primary, not public mkt
    • Maturity ≥ 9 mos., then PRESUMED to be a SECURITY unless rebutted in 1 of 2 ways:
      • FAMILY RESEMBLANCE to a COMMERCIAL transaction (i.e. not investment) consumer financing, mortgage, short-term small business loan secured by accts receivable or assets, note for open-account debt in ordinary course of business
      • Reves BALANCING TEST – 4 factors to assess the economic reality of note.
        1. Motivation of buyer and seller “business use” v commercial purpose
          • Long-term uses like investment in capital assets more likely a SECURITY
            • Reves Coop sold promissory notes to raise capital for general business operations
            • Reves buyers bought to earn profit as interest
              • interest rate adjusted monthly to keep it above bank rates to ensure profit
            • For consumer good or “commercial purpose,” NOT security
              • immediate consumption, short-term use (inventory)
  1. Plan of distribution
    • Widely offered and traded = likely SECURITY
      • Reves Offered to 23k members + nonmembers
    • Not widely distributed = likely NOT a security
      • Face-to-face negotiation to limited group
  1. Reasonable Expectations of Investing Public
    • Reves marketed notes as investment program = SECURITY
    • Not-for-profit = likely NOT a security
  2. Presence of alternative regulatory regime
    • Reves notes uncollateralized and uninsured, not regulated by any other agency, e.g. FDIC = likely a SECURITY
    • If secured, then more like banking, then NOT a security
  • If NO CHARACTERISTICS of LABEL, then analyze whether it’s an INVESTMENT CONTRACT.
    • Reves promissory notes were securities as an investment contract as well.
      • Invest money? Yes, even called “investment program”
      • Common enterprise? Y, Common pool of co-op = horizontal & at least broad vertical com.
      • Expectation of profits? Y, co-op even adjusted the rate to keep it profitable for investors
      • Efforts of another? Y


A land contract at a uniform price per acre of undifferentiated tracts of a citrus grove and an optional 10-yr service contract from another co to harvest the fruit was construed to be an investment contract and thus a security.



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