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Should any note that matures under nine months be outside securities regulation?

· securities,fraud,promissory note,exchange,15 USC 78c

"Do the words 'nine months' mean nine months?"

For more than 40 years, the SEC and the courts have construed a major exemption in the securities laws to extend only to regular commercial paper.

But in a recent opinion by U.S. District Court Judge William G. Young (D-Mass.), the judge opined that any note that matures in less than nine months should probably be considered outside the scope of the securities laws.

The law in question, 15 U.S.C. 78c(a)(10), puts it simply: any note with a maturity less than nine months should not be considered a security.

But law is a peculiar thing, Young points out, and the Supreme Court has even ruled that a slimy, slippery fish is not a "tangible thing."

And so the SEC and a number of courts have come to construe "any note" to mean only "commercial paper." This despite the plain language that, as Judge Young made clear, includes any of kind of note that matures in nine months.


Because of the ample precedent lined up against him, Judge Young was reluctant to rule on his interpretation, and was able to dispose of the case another way. But he invited the First Circuit and other courts to consider his interpretation, which would create a drastic change in how the law has been applied.