EBEL, Circuit Judge.
This appeal arises out of a civil-enforcement action brought by the Securities and Exchange Commission ("SEC") against Defendant-Appellant Ralph W. Thompson, Jr., in connection with an alleged Ponzi scheme Thompson ran through his company, Novus Technologies, L.L.C. ("Novus"). The district court granted summary judgment in the SEC's favor on several issues, including the issue of whether the instruments Novus sold investors were "securities," as that term is defined under the Securities Act of 1933 and the Securities Exchange Act of 1934 (collectively, the "Securities Acts").
Thompson's sole claim on appeal is that the district court ignored genuine disputes of material fact on the issue of whether the Novus instruments were securities, and that he was entitled to have a jury make that determination. We conclude, under the test articulated by the Supreme Court in Reves v. Ernst & Young, 494 U.S. 56, 110 S.Ct. 945, 108 L.Ed.2d 47 (1990), that the district court correctly found that the instruments Thompson sold were securities as a matter of law. Exercising jurisdiction under 28 U.S.C. § 1291, we AFFIRM.
Sometime in 2000, Appellant Thompson founded Novus as a vehicle for his business ventures in China and elsewhere across the globe. According to Thompson, by 2005, his connections in China had yielded some lucrative business opportunities. Thompson's most promising prospect involved selling a quantity of biodiesel reactors to a Chinese company at a substantial profit. But before Thompson could cash in, he needed to raise $12 million to facilitate that transaction. In fact, each of Thompson's prospects in China required significant capital, of which Thompson had none.
By 2006, however, Thompson had attracted the attention of a partner, Duane C. Johnson,
Thompson and Johnson's enthusiasm about Holloway's program piqued after they spoke with one of Holloway's investors, Casey Hall, who told them he had already successfully invested millions with Holloway. Hall also told Thompson and Johnson about his own real-estate based investment program, which guaranteed investors an even more enticing ten percent monthly return. At Hall's suggestion, Thompson and Johnson obtained $360,000 in investment capital through Chase Bank's small business loan program, and the two began — through Novus — to invest in both ventures. Later, Novus would also invest in yet another alleged real-estate program, Emma Golding's "Calypso," which promised staggering monthly returns of fifteen percent on investment.
Attracted by the prospect of such impressive returns, "friends and family" began to inquire with Thompson and Johnson about participating in these programs, and the two approached Hall about involving
The boilerplate "UNSECURED PROMISSORY NOTE" (the "Instrument"), which governed the majority of the transactions between Novus and its "lenders" (the "holders"), stated in relevant part that Novus "promise[d] to [re]pay" the principal amount (Novus required a minimum "loan" of $100,000) after a term of six months, plus monthly interest of between three and five percent, depending upon whether the holder chose monthly payments or a lump sum at maturity. Id. at 246. The Instrument also stated the following:
Id. (emphasis added). Finally, the Instrument stated on its face that it was not a security, and it bore features such as acceleration conditions, a waiver-of-presentment clause, a non-assignment clause, an attorney-fee-collection clause.
According to Thompson, the Instrument was "not offered publicly all at once," Aplt. Br. at 5, and "what [he] told prospective lenders varied as time passed and as our company evolved," Supp.App. at 321. At first, Thompson simply "ma[de] referrals" to his "friends and family" so that they could take out small business loans, as he had, from Chase Bank. Id. at 213. But in so doing, Thompson would "make them aware of the money they could earn ... how [Thompson] was earning money." Id. Eventually, Hall agreed to accept the proceeds of "loans" between Novus and Instrument holders, and so early holders "loaned funds to Novus and then [Thompson] loaned them to Casey Hall." Id. at 230. Thompson told these early holders "the type of business that [he] was doing and what the money was used for." Id. at 231. As "more and more people were interested in the loan program ... [Thompson and Johnson] decided to turn [the Instruments] into more of a business." Id. at 236.
As Novus grew, Thompson fielded conference sales calls set up by a third party; he offered existing holders referral fees; he began to advertise the Instruments on Novus's web site; and by February 2007, he had begun personally touting the Instruments at shopping-mall seminars, where he would explain to prospective holders how they could liquidate equity in their homes and invest in the Instrument, which he "characterized ... as low risk," Supp.App. at 262: he claimed that Novus's product was "more conservative than a 401(k) [or a] mortgage," Aplt.App. at 458, extoled Novus's "reserve of cash and assets to cover any money that we borrow for six months," id. at 479-80, and asserted that "when you put $100,000 into our program, we only use $25,000 of that" for core-business "projects"; "[t]he other $75,000," he claimed, "we don't use," id. at 479.
On April 11, 2007, the SEC curtailed Novus's activities when it filed a civil complaint and obtained a temporary restraining order against Novus, Thompson, Hall, Holloway, and others. All told, before the SEC shut it down, Novus made a total of 138 of its "loans" to around sixty holders.
After filing suit against Thompson and others under several civil-enforcement provisions of the Securities Acts, including 15 U.S.C. §§ 77q(a)(1)-(3), 78j(b), 77e(a) & (c), and 780(a), the SEC filed a motion for summary judgment, which the district court granted in part and denied in part. As is relevant here, the district court granted the SEC's motion on the issue of whether the Instruments Thompson and Novus sold were securities as defined under the Securities Acts, holding that they were securities as both "notes" under Reves v. Ernst & Young, 494 U.S. 56, 110 S.Ct. 945, 108 L.Ed.2d 47 (1990), and "investment contracts" under SEC v. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946). Thompson timely filed this appeal, in which he argues only that the district court erred when it granted summary judgment on the issue of whether the Instruments Novus sold were securities.
We review a district court's grant of summary judgment de novo. Garrison v. Gambro, Inc., 428 F.3d 933, 935 (10th Cir.2005). Summary judgment is appropriate when "there is no genuine dispute as to any material fact and ... the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). In making
Even though we view the evidence in the nonmovant's favor, however, a factual dispute cannot be said to be "genuine" if the nonmovant can do no more than "simply show that there is some metaphysical doubt as to the material facts." Champagne Metals v. Ken-Mac Metals, Inc., 458 F.3d 1073, 1084 (10th Cir.2006); accord Rice v. United States, 166 F.3d 1088, 1092 (10th Cir.1999) ("To carry his burden, [the non-movant] must present more than a scintilla of evidence."). That is to say, we will uphold a district court's grant of summary judgment if the evidence is "so one-sided that one party must prevail as a matter of law." Simpson v. Univ. of Colo. Boulder, 500 F.3d 1170, 1179 (10th Cir.2007) (quoting Bingaman v. Kan. City Power & Light Co., 1 F.3d 976, 980-81 (10th Cir.1993)).
As is especially relevant here, a court's "genuineness" review "necessarily implicates the substantive evidentiary standard of proof that would apply at the trial on the merits." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In other words, "an issue of material fact is genuine only if the nonmovant presents facts such that a reasonable [factfinder] could find in favor of the nonmovant." Planned Parenthood of the Rocky Mountains Servs. v. Owens, 287 F.3d 910, 916 (10th Cir.2002). This means that once the movant has made a showing that there is no genuine dispute of material fact, the non-moving party must "make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
"In the absence of a genuine dispute of material fact, we determine whether the district court correctly applied the substantive law." Owens, 287 F.3d at 916.
In response to "serious abuses in a largely unregulated securities market," Reves, 494 U.S. at 60, 110 S.Ct. 945, Congress enacted the Securities Acts "to restore investors' confidence in the financial markets," Marine Bank v. Weaver, 455 U.S. 551, 555, 102 S.Ct. 1220, 71 L.Ed.2d 409 (1982) (discussing specifically the '34 Act). To meet that end, Congress "painted with a broad brush" in defining "security," so as to capture under the ambit of the Acts the "countless and variable schemes devised by those who seek the use of the money of others on the promise of profits." Reves, 494 U.S. at 62, 110 S.Ct. 945 (internal quotation marks omitted) (citing W.J. Howey Co., 328 U.S. at 299, 66 S.Ct. 1100). Section 2(1) of the Securities Act of 1933 thus defines "security" in broad and general terms as:
48 Stat. 74, as amended, 15 U.S.C. § 77b(a)(1).
In line with Congress's broad regulatory aims, courts inquiring into an instrument's status as a "security" are not "bound by legal formalisms," but instead must "take account of the economics of the transaction under investigation" in order to capture and effectuate the regulation of "investments, in whatever form they are made and by whatever name they are called." Reves, 494 U.S. at 61, 110 S.Ct. 945 (citing Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967)). Indeed, "form should be disregarded for substance and the emphasis should be on economic reality." Tcherepnin, 389 U.S. at 336, 88 S.Ct. 548.
However, the Supreme Court has cautioned that, in enacting the securities laws, "Congress ... did not intend to provide a broad federal remedy for all fraud." Marine Bank, 455 U.S. at 556, 102 S.Ct. 1220 (emphasis added). Reflecting that principle, Congress tempered its broad definition of "security" under the Acts with an exception applicable to short-term notes.
In Reves v. Ernst & Young, the Supreme Court resolved a circuit split on the proper approach to ascertaining whether a "note" is a security under the Securities Acts. 494 U.S. at 64-65, 110 S.Ct. 945. The Court adopted a version of the Second Circuit's "family resemblance" test, under which
Id. at 67, 110 S.Ct. 945 (emphasis added). The categories of instrument enumerated by the Second Circuit which are not securities include
Id. at 65, 110 S.Ct. 945 (quoting Exchange Nat'l Bank of Chicago, 544 F.2d at 1137, and Chemical Bank v. Arthur Andersen & Co., 726 F.2d 930, 939 (2d Cir.1984)).
The Court instructed that if application of Reves's four factors "leads to the conclusion that an instrument is not sufficiently similar to an item on the list," the analyzing court must then decide "whether another category should be added ... by examining the same factors." Reves, 494 U.S. at 67, 110 S.Ct. 945. As the Court did in Reves, we have conceived of this analysis as comprised of two separate steps. See Holloway, 900 F.2d at 1487. However, "both inquiries involve the application of the same four-factor test, and so the two essentially collapse into a single inquiry." Wallenbrock, 313 F.3d at 537; accord Stone, 998 F.2d at 1538-39 (treating the two steps as a single inquiry designed to facilitate the determination of whether the subject instrument's "`family resemblance' to [the enumerated] notes is sufficiently strong to cause [the subject instrument] to be included within the categories of notes that are not regarded as securities"). We construct our family-resemblance inquiry into the "securities" status of the Novus Instruments, then, around a single balancing of Reves's four factors, but stressing that those four factors only are directed toward assisting in a determination whether the Instruments in question are similar (or bear a family resemblance) to the types of "notes" enumerated by the Second Circuit in Exchange Nat'l Bank of Chicago, 544 F.2d at 1137, and Chemical Bank, 726 F.2d at 939.
Before we turn to apply the Reves factors in this case, however, we pause to address two additional points pertaining to the nature of Reves's family-resemblance inquiry generally, and at the summary judgment stage in particular.
First, Thompson repeatedly claims that he is entitled to have a jury make the ultimate determination under the family-resemblance test as to whether the Instruments were securities under the Acts. In making this claim, however, Thompson all but ignores authority in this circuit and elsewhere suggesting that the opposite is true: for example, we have previously held that, in the context of a civil suit, the ultimate question of whether an instrument is a security is "a question of law and not of fact," such that submitting the question to a jury was error. Ahrens v. Am.-Canadian Beaver Co., 428 F.2d 926, 928 (10th Cir.1970); accord 4-82 Modern Federal Jury Instructions — Civil, ¶ 82-3, Comment, n.13 ("[T]he question of whether a security is within the terms of the Security Act is better viewed as a question of law for the court."); see also McNabb v. S.E.C., 298 F.3d 1126, 1130 (9th Cir.2002) ("Whether a note is a security under the 1934 Act is a question of law, which we review de novo."); S.E.C. v. Life Partners, Inc., 87 F.3d 536, 540-41 (D.C.Cir.1996) (same).
Of course, none of this is to say that summary judgment will be appropriate where the parties have identified genuine disputes of material fact that could tip a reviewing court's balance of the "family resemblance" factors articulated in Reves. Indeed, as we observed recently elsewhere in the context of a criminal case, the individual factors of the "family resemblance" test, which inquire into "motivation, distribution, expectation, and risk," lead us to conclude that "the question of whether a note is a security has both factual and legal components." United States v. McKye, ___ F.3d ___, No. 12-6108, 2013 WL 4419330, at *4-*5 (10th Cir. Aug. 20, 2013) (holding that, notwithstanding the complexity of the Reves test, in the context of a criminal case, the ultimate question whether an instrument is a security must be submitted to the jury when it "implicate[s] an element of the offense."). However, following previous Tenth Circuit precedent, see Ahrens, 428 F.2d at 928, we hold that, in the context of a civil case where the "security" status of a "note" is disputed, the ultimate determination of whether the note is a security is one of law; thus, resolution of factual disputes will be necessary only in those rare instances where the reviewing court is unable to make a proper balancing of the family-resemblance factors without resolving those factual disputes.
That leads us to the second, related point: we conduct our analysis today mindful of the way in which the presumption that all notes are securities, see Reves, 494 U.S. at 67, 110 S.Ct. 945, colors, at the summary judgment stage, the evidentiary burden of a non-movant who argues that a note is not a security. If, as here, the moving party can satisfy its "initial responsibility of presenting evidence to show the
We can now turn to the four factors from Reves to determine whether, as Thompson alleges, the district court erred when it ruled that the Novus Instruments were securities as a matter of law.
Thompson claims that he has raised disputes of fact material to whether the Instruments were securities, so that the district court's grant of summary judgment on that issue was error. In the discussion that follows, we limit our consideration to facts Thompson does not dispute and draw all reasonable inferences in his favor. See Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir.1998). Even when viewed in the light most favorable to Thompson, however, Thompson cannot meet his burden to rebut the presumption that Novus's Instruments were securities under Reves's family-resemblance test.
We first examine the motivations that would prompt a reasonable buyer and seller of the Instruments to enter into the transaction. Reves, 494 U.S. at 66, 110 S.Ct. 945. "If the seller's purpose is to raise money for the general use of a business enterprise or to finance substantial investments and the buyer is interested primarily in the profit the note is expected to generate, the instrument is likely to be a `security.'" Id. On the other hand, "[i]f the note is exchanged to facilitate the purchase and sale of a minor asset or consumer good, to correct for the seller's cash-flow difficulties, or to advance some other commercial or consumer purpose, ... the note is less sensibly described as a `security.'" Id.
This factor clearly favors a finding that the Instruments were securities. As to Novus's motivation for issuing the Instruments, Thompson's own sworn statement reflects that "Novus started borrowing funds from companies owned by our friends and families and using most of those funds to grow a reserve toward the $12 [m]illion needed to fund the China Biodiesel project, earning interest by placing them with either Hall or Holloway." Aplt.App. at 167; accord id. at 168 (characterizing the Instruments as "a business-to-business loan to be used for the growth of Novus at our discretion" (emphasis added)). And on their face, most of the Instruments bore the following: "[i]t is expressly understood between the parties that the Borrower shall be using the proceeds from the Note for further investments...." Id. at 246. Thompson does not claim that Novus issued the Instrument for any other purpose than to "raise money for the general use of [its] business enterprise [and] finance substantial investments," Reves, 494 U.S. at 66, 110 S.Ct. 945.
As to the motivation of the holders, the attractive interest rate the Instruments guaranteed provides strong evidence that holders were "interested primarily in the profit the note [was] expected to generate," id. Novus promised investors monthly returns of between three and five
The record also contains substantial evidence that the holders understood that Novus was investing their money, and not "correct[ing] for [its] cash-flow difficulties, or ... advanc[ing] some other commercial or consumer purpose," Reves, 494 U.S. at 66, 110 S.Ct. 945. As we have already emphasized, the Instruments themselves stated that "[i]t is expressly understood between the parties that the Borrower shall be using the proceeds from the Note for further investments...."
In response, Thompson invokes what he calls a "compendium of declarations from sixteen persons who each made one or more loan [sic] to Novus," which Thompson claims provides enough evidence to create a genuine dispute of material fact as to the holders' motivations for entering into the Novus transactions. Aplt. Br. at 24-25. But this "compendium" does not appear in the record before this court, and so we decline his invitation to consider it.
In sum, the apparent motivations of the parties to the Novus transactions bear little resemblance to the motivations of ordinary parties who would enter into the categories of non-securities instrument listed by the Second Circuit in Exchange Nat'l Bank of Chicago and Chemical Bank: while the usual "buyers" of those non-securities notes — sophisticated banks and outfits offering purchase-money loans — may be motivated by profit, the "sellers," unlike Novus, are ordinarily consumers or businesses motivated to correct temporary cash-flow difficulties or to make one-time purchases of items which will function as direct collateral in case of default. We hold that the "motivation" factor cuts strongly in favor of Reves's presumption that the Instruments are securities.
The second Reves factor asks the court to determine whether the Instruments were ones in which there was "common trading for speculation or investment." Reves, 494 U.S. at 66, 110 S.Ct. 945. Though it can be a strong indicator that a note is a security, the sale of the notes on an exchange is not necessary to establish the requisite common trading. Id. The same is true with respect to other characteristics common to many types of securities, such as transferability. See Great Rivers Co-op. of Se. Iowa v. Farmland Indus., Inc., 198 F.3d 685, 699-700 (8th Cir.1999). Ultimately, the Supreme Court has instructed that the offer and sale of instruments to a "broad segment of the public" is all that is necessary to establish this element. Reves, 494 U.S. at 68, 110 S.Ct. 945; see also id. at 61, 110 S.Ct. 945 (emphasizing that Congress "enacted a definition of `security' sufficiently broad to encompass virtually any instrument that might be sold as an investment"). Importantly, an "evident interest in widening the scope of distribution," combined with the "broad availability of the notes" can tip this factor "strongly in favor" of classifying the note as a security. Wallenbrock, 313 F.3d at 539.
Thompson claims that the "Novus notes, sold mostly by word-of-mouth to sixty people, many of whom were family and friends, certainly were not `sold to a broad segment of the general public.'" Aplt. Br.
According to Thompson, Novus's "loan program" started off small and ad hoc, but "when more and more people were interested in the loan program, ... [Thompson and his partner Johnson] decided to turn it into more of a business." Supp.App. at 236. To that end, between December 2006 and February 2007, Thompson admits that he "participate[d] in conference calls with people who were interested in placing funds with Novus." Id. at 267. These calls were frequently arranged by Carol Dysart, "a highly motivated marketer" and an agent of Equidigm Financial Group, another company cofounded by Thompson. Id. at 266-67. By February 2007, Novus was paying referral fees to existing holders who brought in new prospective holders. Id. at 263. Also by this time, Thompson had begun delivering shopping-mall seminars promoting Novus's "loan program" and maintaining a web site, accessible to the general public, advertising both the Instruments and the seminars.
Against this background, Thompson nevertheless insists that Novus never targeted the general public with its Instruments. He claims that Novus always required its holders to be a "business," stressing that, from February 2007 on — after Novus converted the Instruments from unsecured promissory notes to joint venture agreements — Novus contractually required holders to be "accredited" or "sophisticated" investors. Aplt.App. at 313. However, these new requirements appear to have been mere formalities designed specifically to circumvent the Securities Acts while maintaining a broad distribution base. See Aplt.App. at 176-77 (Thompson's declaration) (describing how Novus hired an attorney who informed Thompson that the promissory-note Instruments "could be considered to be a security ... because of the number of the promissory notes being used by Novus," and advised "Novus to change its documenting method of accepting loans to a `Joint Venture' Agreement to help stay away from any grey area" (internal quotation marks omitted)).
Indeed, Thompson offers no evidence that Novus ever sought to verify the accreditation status of any of its prospective holders, or to change any of its other business practices, with the adoption of the joint venture agreements. To the contrary, the record shows that even after adding the new contractual provisions, Thompson targeted unsophisticated investors with whom he had no prior relationship: at his seminars, for example, Thompson advised prospective holders on basic investment concepts, such as how to obtain cash from home equity, and the importance of registering a company to avoid personal liability.
Thompson's remaining two arguments on this factor are equally unavailing. First, Thompson points us to the case of Banco Espanol de Credito v. Sec. Pac. Nat'l Bank, 973 F.2d 51 (2d Cir.1992), where the Second Circuit found that the plan of distribution cut against a finding that the instruments were securities. But that case is inapposite. There, (1) all parties were sophisticated commercial or financial institutions that received "detailed individualized presentations" about the product; (2) the instruments were not offered to the general public; and therefore (3) eligible buyers were limited to sophisticated entities "with the capacity to acquire information about the debtor." Banco Espanol, 973 F.2d at 55. Thus, "Banco Espanol was more analogous to a group of highly sophisticated commercial entities engaging in short-term commercial financing arrangements," Pollack v. Laidlaw Holdings, Inc., 27 F.3d 808, 813 (2d Cir. 1994), than the Novus transactions, where the record strongly suggests that Thompson recruited ordinary people to lend Novus money under vague auspices.
Finally, Thompson claims Novus's final "loan" tally — 138 Novus Instruments sold
In sum, even when the evidence is construed in Thompson's favor, the only reasonable inference to be drawn is that Novus intended to make, and did make, its Instruments available to any member of the public who could afford them. We also note that the plan of distribution of the Novus Instruments bears no similarity to the typical plan of distribution in the non-security instruments on the Second Circuit's list: in those distribution plans, the party receiving the infusion of cash will often transact with only one "lender"; and the "lender," ordinarily a bank or some other lending institution, will infuse cash into myriad "borrowers" as part of its ordinary course of business. Novus's scheme, on the other hand, involved one "borrower" and myriad "lenders," which resembles far more closely the activity of a company selling its own stock on an exchange. This factor strongly cuts toward finding that the instruments were "securities."
Under Reves's third factor, "we examine the reasonable expectations of the investing public," with the court considering "instruments to be `securities' on the basis of such public expectations, even where an economic analysis of the circumstances of the particular transaction might suggest that the instruments are not `securities' as used in that transaction." Reves, 494 U.S. at 66, 110 S.Ct. 945. This factor "generally turns on whether [the notes] are reasonably viewed by purchasers as investments." Stoiber, 161 F.3d at 751. Where the instruments are characterized by the originator as "investments" and there are no "countervailing factors" that would lead a reasonable person to question this characterization, "it would be reasonable for a prospective purchaser to take the [originator] at its word." Reves, 494 U.S. at 69, 110 S.Ct. 945. "Conversely, when note purchasers are expressly put on notice that a note is not an investment, it is usually reasonable to conclude that the `investing public' would not expect the notes to be securities." Stoiber, 161 F.3d at 751.
This factor is a closer call. On the one hand, the Instrument expressly stated that "[Novus] is not offering a security as defined by the Securities and Exchange Commission." Aplt.App. at 247; accord id. at 240 (Novus web site) ("This is not an investment program."). Additionally, the Instruments bore features not ordinarily associated with securities, such as acceleration conditions, a waiver-of-presentment clause, a non-assignment clause, and an attorney-fee-collection clause. And at Thompson's seminars, he represented that
On the other hand, we can identify some "countervailing factors" that would lead a reasonable person to question Novus's characterization of the Instruments as non-securities. Thompson testified that he employed, from early on, a concept sounding in investment called "Money Technology," which he touted to describe the Instrument's function to prospective holders.
We need not spend too long on this element, however, because, as the D.C. Circuit recognized in Stoiber, "[t]he Supreme Court itself described this factor as a one-way ratchet," allowing "notes that would not be deemed securities under a balancing of the other three factors nonetheless to be treated as securities if the public has been led to believe they are," but not allowing "notes which under the other factors would be deemed securities to escape the reach of regulatory laws." Stoiber, 161 F.3d at 751 (citing Reves, 494 U.S. at 66, 110 S.Ct. 945). And we conclude that this Reves factor leans, at least slightly, toward characterizing the Novus Instruments as securities.
Under the final Reves factor, we look to whether "some factor such as the existence of another regulatory scheme significantly reduces the risk of the instrument, thereby rendering application of the Securities Acts unnecessary." Reves, 494 U.S. at 67, 110 S.Ct. 945. If the instrument "would escape federal regulation entirely if the
Ignoring the controlling cases cited, Thompson argues, citing no law, that Novus holders were adequately protected because the Utah State Securities Division ("USSD"), a state regulatory agency, was "hip-deep" in investigating Novus and its "basically local, relatively small number of loans," and because
Aplt. Br. at 31. But Thompson offers no argument or authority as to the nature of the USSD's state-enforcement mechanisms, how those coexist or interact with the federal Securities Acts, or how those might have protected out-of-state holders of Novus instruments. Cf., e.g., 15 U.S.C. § 77r(c) (recognizing state authority to regulate offerings of securities that are completely intra-state). Indeed, Thompson admits that at some point in its investigation the USSD "turned the matter ... over to the SEC." Aplt. Br. at 31. Perhaps it did so because it realized that Novus had issued the Instruments to holders outside of Utah, and consequently that Novus's program has expanded beyond the USSD's jurisdiction. In any event, Thompson's alternative-regime argument lacks any support and runs counter to Reves's clear emphasis on federal regulation, see, e.g., Reves, 494 U.S. at 69, 110 S.Ct. 945; Holloway, 900 F.2d at 1488, and we therefore reject it.
Our review of Reves's fourth factor can also take into account other risk-reducing features, such as the existence of collateral backing the notes, see Stone, 998 F.2d at 1539 (fact that instruments were collateralized led to finding risk-reducing factor). But Thompson does not advance any such argument.
We conclude that Novus's Instruments are securities under the family-resemblance test articulated in Reves. Our analysis of the test's four factors confirms that the Instruments bear little resemblance to the categories of non-securities instruments on the Second Circuit's judicially crafted list. And that same analysis — under which we concluded that the first, second, and fourth factors cut strongly in favor of classifying the Instruments as securities, and that the third factor slightly suggests classification as a security as well — counsels against adding a new category of non-security to the Second Circuit's list. In sum, even construing all of the facts and reasonable inferences to be drawn therefrom in Thompson's favor, we hold that Thompson cannot rebut the presumption that the Novus Instruments were securities.
The district court also found that the Instruments were "investment contracts" under SEC v. W.J. Howey Co., 328 U.S. 293, 301, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946) (making the test for securities "whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others"). In light of our conclusion that the Novus Instruments were securities as "notes" under Reves, we need not reach whether they were also securities as "investment contracts" under Howey.
For the foregoing reasons, we conclude that no genuine issues of material fact exist as to whether the Novus Instruments were securities. As a matter of law, the Instruments were securities as "notes" under
We AFFIRM.
At the summary judgment hearing before the district court, Thompson's counsel conceded that "there [was] no difference between the joint venture [agreement] and the [unsecured promissory] note.... [The joint venture agreement is] a note ... just gussied up with a different form." Supp.App. at 424. Throughout his briefs, Thompson refers to both instruments collectively as the "Novus notes" or "Novus loans," and offers virtually no legal argument as to how the change should affect our analysis. Accordingly, and because Thompson never argues that Novus changed anything about its business practices (e.g., by actually vetting potential holders' accreditation status) after moving to the joint venture agreement, this opinion's references to the "Instrument" generally encompass transactions involving both the unsecured promissory note and the joint venture agreement, unless otherwise indicated.
Id. After the Court decided Reves, we suggested in Holloway v. Peat, Marwick, Mitchell & Co., that the presumption does apply to notes maturing in less than nine months. 900 F.2d 1485, 1488-89 (10th Cir.1990) (observing that "[e]ven if an issuer cannot rebut the presumption that a note is a security under the family resemblance test, the note may still be excluded from coverage of the Acts if it `has a maturity at the time of issuance of not exceeding nine months,'" and reaffirming that the "exception for short-term notes is limited to prime quality negotiable commercial paper" (emphases added)); accord S.E.C. v. R.G. Reynolds Enters., Inc., 952 F.2d 1125, 1132 (9th Cir. 1991) (limiting the short-term note exception to "commercial paper and hold[ing] that the presumption that a note is a security applies equally to notes of less than nine months maturity that are not commercial paper").
In this case, Thompson makes no arguments about how the Instruments' 6-month term might affect application of the presumption. See Aplt. Br. at 32 (arguing only that "courts are generally inclined to look more closely at notes maturing in less than nine months and are less inclined to automatically label them as securities" (emphasis added)). Perhaps this is because the Novus Instruments allowed Novus to extend the term for an additional six months at its own discretion. See 15 U.S.C. § 78c(a)(10) (excluding from coverage "any note ... which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof ... which is likewise limited"). In any event, because Thompson appears to accept that the presumption applies to Novus's Instruments, we address that issue no further.
As to Thompson's claim that holders loaned Novus money because they "trusted" him, that evidence does not assist Thompson at all, because trust would be an expected ingredient in making either a loan or an investment. See Stoiber, 161 F.3d at 750 (considering appellant's similar claim that customers provided funds "because of the personal relationships [appellant] had with them," and admonishing that "[t]his display of trust ... does not speak to the note holders' original motivations in making the loans[,] ... [but r]ather ... to the information available to them when deciding whether the notes involved a tolerable level of risk").
Aplt.App. at 411-12 (emphases added). At another seminar, Thompson's statements indicate that Novus had already expanded its scope of distribution beyond "friends and family":
Id. at 494-95, 505-06.
Aplt.App. at 240.
The Reynolds court addressed a note's maturity term under the fourth Reves factor — as a feature that might "significantly reduce the risk of the instrument, thereby rendering the application of the Securities Acts unnecessary." In Reynolds, the appellant had issued promissory notes to investors and promised to pay between twenty and thirty percent interest at a specified time in the future, usually between six and twelve months. Id. at 1128. The court acknowledged that "the longer one's funds are to be used by another, the greater the risk of loss," but continued that "[i]n the instant case, those investors who were issued six month promissory notes were no less in need of statutory protection than investors who received twelve month promissory notes," and "the shorter term of some of the promissory notes did not materially reduce the risk to investors." Id. at 1133 (internal quotation marks omitted). Thompson does not explain how the six-month term of the Novus Instruments might have materially reduced the risk of loss to investors so as to remove the need for the protection of the Securities Acts, and as we have just discussed, Reves's fourth factor otherwise weighs heavily in favor of finding the Novus Instruments to be securities.
