Amerivest Financial, LLC v. Malouf

When the expected profits of investment transactions are the result of management and control by a company’s own officers, the investment transactions are not “investment contracts” for the purposes of securities fraud under ORS 59.137.

Amerivest Financial, LLC (Amerivest) appealed a judgment for Lewis Malouf (Malouf) following a jury trial that concluded that neither investment programs nor individual senior life policy settlements (SLPs) were securities under Oregon law. Initially Malouf, doing business as Charles Financial LLP, entered into an agreement with Amerivest to buy and sell SLPs. In January 2006, Amerivest authorized Malouf, as an individual, to become Director of Finance and Investments of Amerivest via corporate resolution, which “empowered [Malouf] with full signature authority to act on behalf of [Amerivest] . . . for the purpose of protecting [Amerivest’s] interest’s in all financial transactions and investments, as pledged by the corporation to the full control of Mr. Malouf.” Thereafter, when Malouf failed to perform his duties in securing buyers for the SLPs as required, most of the SLPs lapsed for nonpayment of underlying premiums and became worthless. Amerivest brought suit against Malouf for violation of Oregon securities law and other allegations, all of which were dismissed for lack of jurisdiction except one claim for aiding and abetting Malouf’s breach of fiduciary duty. The Court found for Malouf because the investment program and individual SLPs were not investment contracts, and were thus securities under Oregon law, as the profits of the investment program were a result of the management and control of Amerivest’s own officer, and not others (specifically, Amerivest was not a passive investor, Amerivest granted Malouf authority to act on its behalf, and Amerivest was not foreclosed from the ability to participate in the management of the investment program). Affirmed on appeal and cross-appeal.