The opinion of the court was delivered by: GILES
Pursuant to Fed.R.Civ.Proc. 12, defendant Dean Witter Reynolds, Inc. ("DWR") has moved to dismiss that portion of the complaint of plaintiff Ray S. Fisher which alleges that defendant has violated the Securities Exchange Act of 1934 ("1934 Act"). Defendant argues that since the losses upon which plaintiff's claims are based arose from commodity, rather than security, transactions, no cause of action exists under the federal securities laws.
Plaintiff's factual allegations, which must be treated as correct for purposes of this motion, may be briefly summarized. Sometime prior to June, 1978, defendant Robert J. Becker, an employee of defendant DWR, was retained by plaintiff to serve as his investment advisor and stockbroker. Sometime during June, 1978, Becker recommended that plaintiff purchase a number of interest-rate futures contracts. Relying on Becker's representation that the contracts were safe investments, plaintiff authorized Becker to invest on his behalf in the interest-rate futures market. A sharp rise in interest rates during July and August, 1979, caused plaintiff's investments to become substantially worthless, and his account was liquidated in August, 1979, at a loss in excess of $ 208,000.
Alleging that his losses were caused by certain material misrepresentations and fraudulent omissions made by Becker, plaintiff brought suit under sections 10(b), 15(c), and 20(a) of the 1934 Act, 15 U.S.C. §§ 78j(b), 78o(c), and 78t(a), and under sections 2(a)(1), 4b, and 4o of the Commodities Futures Trading Commission Act of 1974, ("CFTCA") 7 U.S.C. §§ 4, 6b, and 6o.
DWR now seeks to dismiss the securities law claims, contending that since interest rate futures are commodities and not securities, there is no remedy available to plaintiff under the 1934 Act. For the reasons set forth below, defendant's motion to dismiss is denied.
The contracts entered into by plaintiff were agreements to purchase, at a future date, Government Treasury bills and Government National Mortgage Association (GNMA) certificates. The bills and certificates pay interest at a rate fixed at the time of the contract transaction. The value of such a contract increases as market interest rates decline because the fixed interest rate of the government security becomes more favorable in relation to that available in the market.
An examination of the relevant statutory provisions as applied to these interest-rate futures reveals that plaintiff may properly seek redress under the 1934 Act. Section 10(b) of the 1934 Act, 15 U.S.C. § 78j(b), provides:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange-
(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
Section 3(a) of the 1934 Act, 15 U.S.C. § 78c(a), provides in pertinent part:
(13) The terms "buy" and "purchase" each include any contract to buy, purchase, or otherwise acquire.
(14) The terms "sale" and "sell" each include any contract to sell or otherwise dispose of.
In seeking to show that neither party considered the transaction an actual sale of securities, defendant relies heavily on judicial statements that acceptance of delivery of the asset underlying a futures contract is a rare occurrence. See Leist v. Simplot, 638 F.2d 283, 286 (2d Cir. 1980); cert. granted sub nom. New York Mercantile Exchange v. Leist, 450 U.S. 910, 101 S. Ct. 1346, 67 L. Ed. 2d 332 (U.S.1981); Curran v. Merrill Lynch, Pierce, Fenner & Smith, 622 F.2d 216, 220 (6th Cir. 1980), cert. granted, 451 U.S. 906, 101 S. Ct. 1971, 68 L. Ed. 2d 293 (1981). Even assuming that purchasers of interest rate futures contracts infrequently take delivery of the underlying securities, such contracts are nevertheless ...