Securities and Exchange Commission v. J.T. Wallenbrock and Associates Larry Toshio Osaki Van Y. Ichscinotsubo Citadel Capital Management Group, Inc.
Opinion
Opinion
McKEOWN, J.
At issue in this interlocutory appeal is whether promissory notes purportedly secured by accounts receivable of Malaysian latex glove manufacturers constitute securities under the Securities Act of 1933, 15 U.S.C. § 77b(a)(l), and the Securities Exchange Act of 1934, 15 U.S.C. § 78c(a)(10) (collectively the “Securities Acts”). The Securities and Exchange Commission (“SEC”) characterizes the notes as securities and part of a get-rich-quick Ponzi scheme, while the investment firm claims the notes are legitimate short-term loans that are exempt from the securities laws. Applying Reves v. Ernst & Young, 494 U.S. 56 , 110 S.Ct. 945 , 108 L.Ed.2d 47 (1990), we conclude that the notes are securities regulated by the Securities Acts.
Background
In January of 2002, the SEC filed a civil enforcement action against J.T. Wallen-brock & Associates (“Wallenbrock”), along with its managing general partner, Larry Toshio Osaki, its employee, Van Y. Ichsci-notsubo, and Citadel Capital Management Group, Inc. (“Citadel”) (collectively ‘Wal-lenbrock”), to enjoin a fraudulent scheme to sell unregistered securities.
Although Wallenbrock’s story changed over time, the salient points of the plan are as…