Securities & Exchange Commission v. Shoreline Development Co.

MEMORANDUM *

1. Defendants do not dispute that they sold fractional undivided interests in oil and gas rights to the public. A “fractional undivided interest in oil, gas, or other mineral rights” is a security. Securities Act of 1933 § 2(a)(1), 15 U.S.C. § 77b(a)(1). Thus, the district court did not err in holding that the interests sold by defendants were securities.

2. Defendants purchased large blocks of fractional undivided interests in oil and gas rights and sold them to the public in 0.5% and 1.0% increments. Under the Securities Act, an issuer of fractional undivided interests in oil or gas rights includes “the owner of any such right or of any interest in such right (whether whole or fractional) who creates fractional interests therein for the purpose of public offering.” Id. § 2(a)(4). Because defendants sold fractions of their interests in the various wells to the public, the defendants “created” fractional interests for the purposes of a public offering, thus making them issuers under the Securities *661 Act. Alternatively, if defendants did not create fractional interests, they at least “purchased [them] from an issuer with a view to ... distribution,” thus making…