Reves v. Ernst & Young Case Brief

Why is the case important?

On behalf of many buyers of demand notes bought from an agricultural cooperative, Reves (Plaintiff) contended that the notes were securities as defined by the 1934 Securities Exchange Act.

Facts of the case


Does the 1934 Securities Exchange Act consider demand notes offered by a business to finance general operations as securities?


(Marshall, J.)Yes. The 1934 Securities Exchange Act considers payable on demand notes offered by a business to finance its general operations as securities. § 3(a)(10) of the 1934 Securities Exchange Act defined “securities†to include “notesâ€, although knowing that not all notes come within the scope of a security, there are judicial exceptions. Notes given to expedite purchases of particular assets, such as homes and vehicles, are not considered securities. Reasonableexpectation of the note holder is also pertinent and in that sense, there is little doubt that the notes at issue are considered securities. These demand notes indicate investments in the operations of the company in question, while the principal and interests are to be repaid out of the business. Even without ownership interest, this is not unlike a stock, the archetype of a security. For the aforementioned reasons, the Eighth Circuit was wrong. Reversed and remanded.


“The Supreme Court reversed the judgment of the appellate court, which held that the Act’s antifraud provisions did not apply because the demand notes were not “”securities”” within the meaning of 15 U.S.C.S. § 78c(a)(10) . Using the “”family resemblance”” approach, the Court concluded the notes were “”securities.”” The Court considered several factors in making its determination. The co-op sold the notes to raise capital and purchasers bought them to earn a profit in the form of interest. The co-op offered the notes over an extended period to a broad segment of the public. The advertisements characterized the note as “”investments.”” Finally, there was no risk-reducing factor to suggest the notes were not securities.”

  • Case Brief: 1990
  • Petitioner: Reves
  • Respondent: Ernst & Young
  • Decided by: Rehnquist Court

Citation: 494 US 56 (1990)
Argued: Nov 27, 1989
Decided: Feb 21, 1990