A Rose May Not Always Be a Rose: Some General Partnership Interests Should Be Deemed Securities Under the Federal Securities Acts

Authors

Jonathan M. Sobel, Benjamin N. Cardozo School of Law

Abstract

The primary federal securities acts ("securities acts"), enacted during the Great Depression, were remedial in purpose, designed to restore investor confidence by protecting investors from speculative and fraudulent schemes of promoters. Congress included many financial instruments in the definition of a security. However, if an investment is not one of the financial instruments expressly enumerated in the statute, it may still be deemed a security if it is found to fall within the catchall category of "investment contracts." General partnership interests are not among the statutorily enumerated securities. What is more, courts tend to presume that general partnership interests (unlike limited partnership interests) are not investment contracts, and therefore not securities, because general partnerships afford investors access to partnership information and the ability to participate in management. Thus, general partners can usually protect their investment by exercising their partnership powers. However, general partners are sometimes passive investors, who intend from the outset to let others manage their investments for them. Such investors often lack the business sophistication to participate in the management of their investments.

Disciplines

Law | Securities Law

Recommended Citation

Jonathan M. Sobel, A Rose May Not Always Be a Rose: Some General Partnership Interests Should Be Deemed Securities Under the Federal Securities Acts, 15 Cardozo L. Rev. 1313 (1994).
Available at: https://larc.cardozo.yu.edu/clr/vol15/iss4/15