"Notes" Are Not Always Securities

RECENT DECISIONS, NOTABLY THOSE IN THE FIFTH CIRCUIT, FURTHER SUPPORT THE CONCLUSION THAT NOT EVERY NOTE IS A SECURITY. THE LITERAL READING APPROACH HAS BEEN REJECTED. THE SHORT-TERM NOTE EXCEPTION HAS BEEN ABANDONED AND AN ECONOMIC REALITIES APPROACH HAS BEEN ADOPTED. A NOTE, EVEN A SHORT-TERM NOTE, ISSUED IN CONNECTION WITH AN INVESTMENT TYPE TRANSACTION IS A SECURITY. A NOTE ISSUED IN A COMMERCIAL TYPE TRANSACTION, AT LEAST IN THE FIFTH CIRCUIT, EVEN A LONG-TERM NOTE, IS NOT A SECURITY. THE FOCUS IS NOW ON THE NATURE OF THE TRANSACTION GIVING RISE TO THE ISSUANCE OF THE NOTE. WHILE THE INVESTMENT-COMMERCIAL DICHOTOMY THAT HAS EVOLVED FROM THE RECENT CASES IS DESIGNED TO FULFILL THE BASIC PURPOSES OF THE SECURITIES LAWS, IT IS MORE EASILY STATED THAN APPLIED. IT IS NOT ALWAYS EASY TO DETERMINE WHETHER A LOAN IS A COMMERCIAL OR INVESTMENT TYPE TRANSACTION.