When Is a Car a Bicycle and Other Riddles: The Definition of a Security under the Federal Securities Laws
In Marine Bank v. Weaver, the United States Supreme Court decided that a certificate of deposit purchased from a federally-regulated bank was not, under the circumstances of the case, a security under federal laws. Several recent federal court cases have considered the question of the status of certificates of deposit under factual circumstances somewhat different from Weaver. Two of these cases provide an interesting study of the uncertainty that continues to surround the definition of a security. And despite the lengthy definitions of "security" found in federal securities laws, much uncertainty remains as to exactly what is included within the concept of a security. This state of affairs is unacceptable given the importance of the issue to the business community and its legal counselors. This Article will discuss briefly the well-known Howey test and several questions regarding its interpretation. This Article will then address the three most recent Supreme Court cases dealing with the definition of "security" under the federal securities laws and show that these cases either have continued or compounded the confusion over the definition. The two post-Weaver certificate-of-deposit cases will then be examined in an effort to demonstrate the uncertainty which remains concerning the status of certificates of deposit under the federal securities laws. This Article will then conclude with a discussion of the confusion that has resulted due to judicial disagreement as to overriding policy and will propose that decisive action by the Supreme Court is necessary to bring some clarity and certainty to this important area of the law.
M. Thomas Arnold, When Is a Car a Bicycle and Other Riddles: The Definition of a Security under the Federal Securities Laws, 33 Clev. St. L. Rev. 449 (1984-1985)