Fed. Sec. L. Rep. P 94,475 Mary F. El Khadem v. Equity Securities Corporation, a Corporation

This is an action to recover damages for alleged violations of the Securities Act of 1933, the Securities Exchange Act of 1934, and state law. Defendants moved to dismiss, claiming that the case does not involve the purchase or sale of a “security” and therefore neither the Securities Act nor the Securities Exchange Act confer jurisdiction on the district court. The district court held that the case does involve the sale of a security and denied the motion to dismiss. Appellants appeal, and we affirm.

I

BACKGROUND

Defendant Equity Securities Corporation is a registered and licensed dealer-broker of securities and is a wholly owned subsidiary of defendant Equity Funding Company of America. Defendant Lyman Spurlock is an investment advisor, employed by Equity Securities and acting as its agent. During the period in question, Lyman Spurlock served as investment counsellor to plaintiff, Mary El Khadem.

In her amended complaint, Ms. El Khadem alleged the following series of events. In 1968, Mr. Spurlock advised her to invest in a plan offered by Nationwide Investment Corporation. Under this plan Ms. El Khadem borrowed $40,000 from Nationwide to purchase mutual funds that…