MEMORANDUM AND ORDER
NEALON, District Judge.
Defendants have requested the court to reconsider its memorandum of December 30, 1970, in which the court denied defendants' motion to dismiss for lack of jurisdiction under the Securities Exchange Act of 1934 and for invalid service of process pursuant to § 27 of that Act. Defendants' motion was denied on the grounds that, in taking the allegations of plaintiffs' complaint as true, jurisdiction was proper in that the discretionary trading account in commodities futures that the plaintiffs had with J. Samuel Sicherman, trading as J. Samuel Sicherman & Co. (hereafter Sicherman), was an "investment contract" and hence a "security" within Section 2(1) of the Securities Act of 1933, 15 U.S.C. § 77b(1) and Section 3(a)(10) of the Securities Exchange Act of 1934, 15 U.S.C. § 78c(a)(10). In so ruling, the court relied on two decisions of the Southern District of New York, Berman v. Orimex Trading, Inc., 291 F. Supp. 701 (S.D.N.Y.1968) and Maheu v. Reynolds & Co., 282 F. Supp. 423 (S.D.N.Y.1967); reargument denied 282 F. Supp. 428 (1968), both apparently holding that a joint account in commodities futures may constitute a "security" even if there was no pooling arrangement or finding of a "common enterprise" as part of the agreement alleged to be a security. See Maheu v. Reynolds & Co., supra at 429.
See also, I Loss Securities Regulation 489 (2d Ed. 1961).
Defendants now raise for the first time
their contention that the "commonality" aspect of the Maheu and Berman decisions conflicts with the Supreme Court's definition of a security as announced in S.E.C. v. W. J. Howey Co., 328 U.S. 293, 66 S. Ct. 1100, 90 L. Ed. 1244 (1946) and Tcherepnin v. Knight, 389 U.S. 332, 88 S. Ct. 548, 19 L. Ed. 2d 564 (1967). In support of their contention, they request the court to reconsider its prior memorandum in light of the recent Seventh Circuit opinion in Milnarik v. M-S Commodities, Inc., 457 F.2d 274 (7th Cir. 1972); cert. denied 409 U.S. 887, 93 S. Ct. 113, 34 L. Ed. 2d 144 (1972), which held, contrary to Berman and Maheu, that absent a finding of a common enterprise among investors, a discretionary account in commodities futures is not a security within the meaning of the federal securities laws. Thus, the above-cited cases represent two divergent lines of authority on this question. Inasmuch as I agree with defendants that the Milnarik court's requirement of finding a common enterprise is more consistent with the Supreme Court's definition of an "investment contract", a review of the facts and the analysis which that court used is in order.
In Milnarik, plaintiffs had opened a discretionary account with the defendant on the understanding that defendant would use the funds to trade in commodities futures for plaintiffs' benefit. After various trades on plaintiffs' account had resulted in losses, defendant demanded an additional sum to cover the losses. Plaintiffs refused and started an action in the Northern District of Illinois to rescind the agreement and recover their deposit plus interest, arguing that their commodities account was a "security" which should have been registered pursuant to Section 5 of the Securities Act of 1933. The District Court, after assuming the presence of a security, dismissed the complaint holding that the agreement resulted in a private rather than a public offering and, therefore, was not required to be registered. Milnarik v. M-S Commodities, Inc., 320 F. Supp. 1149 (N.D.Ill.1970). Without reaching the question whether the offering was public or private, the Seventh Circuit Court of Appeals agreed that registration was not required, holding that the arrangement between plaintiffs and defendant did not constitute a security. In reaching their decision, the court reviewed both Howey and Tcherepnin and observed that ". . . [judicial] analyses of the question whether particular investment contracts are 'securities' within the statutory definition have repeatedly stressed the significance of finding a common enterprise." Milnarik v. M-S Commodities, Inc., supra 457 F.2d at 276. For example, in Howey, supra, the Supreme Court defined "security" as a
"contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promotor or a third party. . ." (Emphasis supplied.)