Marine Bank v. Weaver

Supreme Court of the United States · 1982 · Corporations

455 U.S. 551 (1982)

Updated August 1, 2026

Corporationsdefinition of securityfederal securities lawSection 10(b)securitycertificate of depositinvestment contractprofit-sharing agreement

Facts

Sam and Alice Weaver bought a $50,000, 6-year certificate of deposit from Marine Bank, and the certificate was insured by the FDIC. They later pledged that certificate to guarantee a $65,000 loan the bank made to Columbus Packing Co., and in return Columbus' owners, the Piccirillos, agreed that the Weavers would receive 50% of net profits, $100 per month while they guaranteed the loan, use of the barn and pasture at the Piccirillos' discretion, and a right to veto future borrowing. The Weavers alleged that bank officers failed to disclose Columbus' poor financial condition and the bank's plan to use the loan proceeds to satisfy Columbus' overdue obligations to the bank and others. Columbus went bankrupt four months later, and the bank indicated it intended to claim the pledged certificate because its other security was inadequate.

Issue

Whether the Weavers' conventional bank certificate of deposit and the separate profit-sharing agreement between the Weavers and the Piccirillos were securities under the antifraud provisions of the federal securities laws. If neither instrument was a security, then the alleged fraud did not occur in connection with the purchase or sale of a security under § 10(b).

Rule

The term "security" is construed broadly to include instruments that fall within the ordinary concept of a security, judged by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect. But an instrument that seems to fall within the statutory definition is not a security if the context otherwise requires, and Congress did not intend the securities laws to create a broad federal remedy for all fraud. A conventional certificate of deposit issued by a federally regulated, FDIC-insured bank is not a security where holders are abundantly protected by federal banking laws, and a unique one-on-one privately negotiated profit-sharing agreement not designed for public trading is not a security merely because it provides a share of profits.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Columbus, Ohio, Lena Ortiz purchased a five-year certificate of deposit from Riverstone Trust Bank, a federally regulated bank. The deposit was FDIC-insured up to the applicable limit, and Lena later claimed the bank officer misrepresented the bank's financial strength when selling the CD.

If Lena sues under § 10(b), is the certificate of deposit most likely a security?

Explanation. The majority held that a conventional certificate of deposit from a federally regulated bank, backed by extensive banking regulation and FDIC insurance, is not a security for purposes of the antifraud provisions. Although the statutory definition is broad, the phrase "unless the context otherwise requires" limits it. The Court emphasized that bank depositors are already abundantly protected by federal banking law, so it is unnecessary to treat such a CD as a security.