Securities Regulation Keyed to Coffee
Reves v. Ernst & Young
Facts
The Farmer’s Cooperative (Coop), as part of an “investment program”, offered high interest, unsecured, not of a fixed term demand notes, selling them to the public and to its members. The profits gleaned from the sale of notes funded the conventional operations of the Coop, thus, once the Coop went bankrupt, Reves and others that procured notes brought an action against the Coop’s accountant, Ernst & Young (Defendant). The suit alleges that Ernst & Young deliberately raised the value of the assets, stating that Ernst & Young were in violation of state securities laws and the 1934 Securities Exchange Act. Reves triumphed at trial for both federal and state claims, securing a $6.1 million dollar judgment. Ernst & Young appealed, contending that the 1934 Act did not list promissory notes as “securities”. The Eighth Circuit Court of Appeals accepted Ernst & Young’s contention and reversed the district court. The Supreme Court granted certiorari.
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