SEC v. Continental Commodities

Is the issuance of notes on a due debt in order to reserve funds for operations a sale of investment paper?


Continental Commodities ran afoul of the SEC, and was required to reimburse its former clients. For certain large clients, Continental issued 60% refunds and promissory notes for the remaining 40%, reserving cash for operations and legal fees. In exchange, these clients promised not to sue Continental. The SEC filed for an injunction to stop this practice, alleging that issuing the notes constituted selling investment paper. Continental claimed that issuing the notes did not constitute a "sale" because it did not receive any value from the recipients.

Full case and case summary also available online at:

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Published In: MLM / Direct Sales Updates, MLM Consulting / Network Marketing Updates, Securities Updates

Reference Info:Federal, 5th Circuit | 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.

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