Lino v. City Investing

Is the giving of a personal promissory note in consideration of a business enterprise the purchase of a security governed by federal security laws?


The Court held that neither the underlying agreement, nor the promissory note were securities as defined by federal law. Lino claimed that the agreement should be treated as an investment contract under the Howey line of cases decided by the Supreme Court. The Circuit Court disagreed, basing its decision on the amount of effort expended by Lino in establishing the enterprise. He claimed significant start-up expenses such as rent, salaries and marketing expenses. The court reasoned that such expenses clearly demonstrated that Lino was expected to undertake significant personal involvement in the operation of the business, and could not expect profit to be derived based on the significant efforts of others, the standard of an investment contract in the line of cases succeeding Howey. Further, his promissory note was not "purchased" by FI in the traditional sense. It was received by FI in consideration of certain rights granted to Lino, and not for their use as an investment. To hold otherwise would be to bring an enormous number of promissory notes made to insure payment, not to function as a type of profit making security, under the control of federal securities laws. The court found that this was not the intent of the securities laws, and that the note should not be regulated as a security.

Case and case summary also available at:

LOADING PDF: If there are any problems, click here to download the file.

Reference Info:Federal, 3rd Circuit, New Jersey | United States

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Babener & Associates | Attorney Advertising

Written by:


Babener & Associates on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.