1 Chapter 41.2
Definition of Security The Farmer’s Cooperative of Arkansas and Oklahoma (Co-Op) was an agricultural cooperative that had approximately 23,000 members. To raise money to support its general business operations, Co-Op sold to investors promissory notes that were payable upon demand. Co-Op offered the notes to both members and non-members, advertised the notes as an “investment program,” and offered an interest rate higher than that available on savings accounts at financial institutions. More than 1,600 people purchased the notes, worth a total of $10 million. Subsequently, Co-Op filed for bankruptcy. A class of holders of the notes filed suit against Ernst & Young, a national firm of certified public accountants that had audited Co-Op’s financial statements, alleging that Ernst & Young had violated Section 10(b) of the Securities Exchange Act of 1934. Are the notes issued by Co-Op “securities”? Reeves v. Ernst & Young, 494 U.S. 56, 110 S.Ct. 945, 108 L.Ed.2d 47, Web 1990 U.S. Lexis 1051 (Supreme Court of the United States)

The notes are securities. This case reminds me to the Enron case, Ernst & Young should have noticed this situation before happening. Co- Op’s is liable for these notes. A security is a negotiable financial instrument that represents financial value, Co- op in this case is the issuer of the security.

2 Chapter 41.7

Insider Trading Donald C. Hoodes was the chief executive officer of the Sullair Corporation. As an officer of the corporation, he was regularly granted stock options to purchase stock of the company at a discount. On July 20, Hoodes sold 6,000 shares of Sullair common stock for $38,350. On July 31, Sullair terminated Hoodes as an officer of the corporation. On August 20, Hoodes exercised options to purchase 6,000 shares of Sullair stock that cost Hoodes $3.01 per share ($18,060) at the time they were trading