US Supreme Court Finds In Favour Of SEC Over Definition Of Securities

by Glen Shapiro, LawAndTax-News.com, New York

15 January 2004

The US Supreme Court on Tuesday ruled in favour of the Securities and Exchange Commission (SEC), arguing that investments offering fixed rates of return can still be considered securities under federal law.

The decision overturned an earlier appeals court ruling which stated that the SEC could not sue ETS Payphones Inc. under US securities laws because the firm's contracts with investors promised a fixed return.

According to reports, Justice Sandra Day O'Connor, one of the panel of Supreme Court justices ruling on the case, argued that allegedly 'low risk' investments are likely to appeal to groups of investors who are more vulnerable to investment fraud, such as the elderly, and unsophisticated investors.

She also suggested that the appeals court ruling left open a loophole for unscrupulous marketers to exploit.

Welcoming the verdict, Larry Soderquist, a former Wall Street attorney, and now professor at the Vanderbilt University School of Law, explained to Reuters that:

"This is important in that it closes down a vehicle that otherwise would have been picked up by promoters. This is the main securities law the Supreme Court is deciding this year. We've all been waiting for it."

Recommended