Securities Law Basics Vol. 1

Did you invest in a “non-traditional” investment? Did you “loan” money to a business? If so, you might have purchased a security. The definition of a “security” includes all of the traditional investment options that most people think of like stocks, bonds, and transferable shares. But, there are two types of securities that are frequently used and abused: notes and investment contracts.

According to the U.S. Supreme Court in Reves v. Ernst & Young, a “note” is presumed to be a security. That means it is a security, unless the person who sold it to you can prove that it is not. Many “notes” are clearly not securities. If you have a mortgage on your house, you signed a promissory note – that’s not a security. But, if you purchased a “note” when you “loaned” money to a business, and they promised an interest rate that is better than you could get at any bank, you might have bought a security.

Another commonly abused security is an investment contract. An investment contract is defined very broadly. It is “an investment in a common enterprise with the expectation of profits to be derived primarily from the efforts of a person other than the investor.” If you invested in someone else’s business, and you are not expected to do any significant work for that business, you might have entered into an investment contract. It might be an investment contract even if the paperwork calls it something else.

If you purchased a note or an investment contract and it lost all or even some of its value, or if the person you bought it from keeps delaying your repayment, we might be able to help.

Also, the person that sold you the security likely needed to be registered to sell securities. You can find out if they were registered at BrokerCheck. If you purchased a security, and the person you purchased it from wasn’t registered, but needed to be, and they did not tell you that they were not registered, whether they knew it or not, you may be a victim of securities fraud.

Prior to joining Camden & Meridew, P.C.Matthew Kestian was the attorney for Prosecution Assistance Unit of the Securities Division of the Indiana Secretary of State. In that role, he prosecuted securities fraud and registration violations in state and federal courts across Indiana. Currently, Mr. Kestian focuses his practice on various civil matters including representing victims of securities violations and criminal defense including securities law defense. If you’re looking for an experienced lawyer to represent you, call Matthew at 317-770-0000 or complete our online contact form.

This website supplies general information about the law but it is provided for informational purposes only. This content does not create an attorney-client relationship and more importantly is not meant to constitute legal advice. You should not act on any of the information contained herein without first consulting an attorney.