Inc., Jack Savage and Edward Weitman have moved to dismiss the
amended complaint for failure to state a claim upon which
relief can be granted. Rule 12(b)(6), F.R.Civ.P. Defendants
have also moved for entry of an order that the suit cannot be
maintained as a class action. Rule 23(c), F.R.Civ.P.
There are four counts to the complaint, all based on the
same alleged transactions, and each purporting to state a
separate claim. For purposes of these motions, those
allegations must be taken as true. Plaintiff claims that he
invested $14,000.00 with the defendants for the purchase of
options to buy or sell commodities futures contracts.
Plaintiff asserts that plaintiff class consists of other
persons who similarly delivered funds to defendants. Plaintiff
alleges that defendants designated one of themselves to act as
trading agent for commodity futures options, but did not in
fact trade with third parties on the open market; instead,
defendants fabricated trades resulting in fictitious profits
and losses on plaintiffs' accounts. Any real trades on behalf
of any plaintiffs were made by defendants either with
themselves or with other investor members of plaintiff class.
Plaintiff further alleges that in the course of soliciting
funds from plaintiffs, defendants made various
misrepresentations as to, inter alia, the profitability of the
investment, the competence and actual opportunity of defendants
to trade in commodity options with third parties on the
commodity exchange, and the special and exclusive knowledge of
defendants as to trading in coffee futures.
Count I seeks injunctive and pecuniary relief for violation
of § 10(b) of the Securities Exchange Act of 1934, as amended,
15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder,
17 C.F.R. § 240.10b-5 (1974). Count II seeks damages for
violations of the registration and anti-fraud provisions of the
Securities Act of 1933, 15 U.S.C. § 77e, 77l, 77o. and 77q.
Count III seeks injunctive and pecuniary relief under the
Illinois Securities Act of 1953, Ill.Rev.Stat. ch. 121 1/2 §
137.5, under a claim of pendent jurisdiction. Count IV seeks
compensation for breach of contract under a claim of pendent
In support of their motion to dismiss, defendants maintain:
(1) that options to buy or sell commodities futures contracts
are not "securities" within the meaning of the federal
securities acts; (2) that even if those acts are generally
applicable to the alleged transactions, the relief sought in
Count I under Section 10(b) and Rule 10b-5 cannot be granted
as a matter of law because plaintiff did not specify any
manipulative or deceptive devices or contrivances actionable
under that section; and (3) that this is not a proper class
action since the existence of common questions of law and fact
is precluded by the nature of the alleged misrepresentations.
Both plaintiff and defendants agree, however, that if this
court finds that commodities futures options are not
securities, all other issues become moot.
Plaintiff asserts that options to buy or sell commodities
futures constitute "investment contracts" and therefore
qualify as "securities" under both the Securities Act of 1933
and the Securities Exchange Act of 1934.*fn1 Plaintiff argues
that all the requisite elements of an investment contract, as
defined by the Supreme Court in S.E.C. v. W.J.
Howey Co., 328 U.S. 293, 298-99, 66 S.Ct. 1100, 90 L.Ed. 1244
(1946), are present in the contract between the parties in
The general rule is clear that contracts to purchase
commodities futures are not investment contracts within the
meaning of the federal securities laws. See Milnarik v. M-S
Commodities, Inc., 457 F.2d 274, 275 n.1 (7th Cir.), cert.
denied 409 U.S. 887, 93 S.Ct. 113, 34 L.Ed.2d 144 (1972),
citing Sinva, Inc. v. Merrill, Lynch, Pierce, Fenner & Smith,
Inc., 253 F. Supp. 359, 365-67 (S.D.N.Y.1966); see also McCurnin
v. Kohlmeyer & Co., 340 F. Supp. 1338, 1340-42 (E.D.La.1972);
and Schwartz v. Bache & Co., Inc., 340 F. Supp. 995, 998-99
(S.D.Iowa 1972). The only exceptions to that rule can be found
in cases where there has been a discretionary commodity trading
account. See Gould v. Barnes Brokerage Co., Inc., 345 F. Supp. 294
(N.D.Tex.1972); Berman v. Orimex Trading, Inc., 291 F. Supp. 701
(S.D.N.Y.1968); and Maheu v. Reynolds & Co., 282 F. Supp. 423
(S.D.N.Y.1967). However, such exceptions are not recognized
in this circuit, where the rule is that even discretionary
trading accounts in commodities futures are not "investment
contracts" for purposes of definition as securities. Milnarik
v. M-S Commodities, Inc., 457 F.2d 274 (7th Cir.), cert.
denied, 409 U.S. 887, 93 S.Ct. 113, 34 L.Ed.2d 144 (1972); Hirk
v. Agri-Research Council, Inc., CCH Fed. Sec.L.Rep. ¶ 94,738,
at 96,452-453 (N.D.Ill. 1974); and Stevens v. Woodstock, Inc.,
372 F. Supp. 654 (N.D.Ill.1974).
Arguably, this case is distinguishable since it is based on
the purchase of "put" and "call" options which could
constitute an investment contract even though the underlying
subject matter of the options, the commodities futures
contract, was not. However, the Supreme Court defined an
investment contract to include an arrangement whereby a person
is induced to invest his money in a common enterprise on the
representation that profits will result solely from the
efforts of the promoter or a third party. S.E.C. v. W.J. Howey
Co., supra, 328 U.S. at 299, 66 S.Ct. 1100. The arrangement in
this case satisfies neither the "common enterprise"
requirement, nor the expectation of profits "to come from the
efforts of others" criteria, and therefore does not constitute
an investment contract within the context of the Securities