Promissory Notes On Short Term Loans Are Securities for the Purpose of Securities Fraud

State of Utah v. Burkinshaw, 2010 UT App. 245, (Utah Court of Appeals September 10, 2010).

Burkinshaw, convicted of securities fraud, appeals her conviction and argues that there was insufficient evidence to show that the transactions were securities under the statute.  Promissory notes are presumed to be securities.  This presumption can be rebutted by showing that the transaction has a family resemblance to non-securities transactions.  In determining if the transaction is a secure transaction the court considers (1) the motivation of the parties, (2) the plan for the distribution of the promissory note, (3) the reasonable expectation of investing public, and (4) whether some factor reduces the instrument’s risk.

In this case, the Court of Appeals affirmed the trial court’s findings that: (1) the investor was motivated by a return on his investment and as such, this factor weighs in favor of the presumption.  (2) There was no evidence that promissory notes are a commonly traded commodity, so that this factor weighs against the presumption.  (3)  The investment appeared to be a secure investment to a reasonable person, and as such, this factor weighs in favor of the presumption.  And, (4) there is no factor that would reduce the risk to the lender beyond the regular remedies at law.  Based on these findings, the instrument falls under the securities act and as such, the finding of the trial court is affirmed.

Full Decision available at    http://www.utcourts.gov/opinions/appopin/hamblin082610.pdf