Cooperatives and Securities Law Policy

Securities laws focus on individual responsibility, the requirement for adequate and accurate information upon which individuals base investment information, transparency in markets, and efficient markets for security interests as enforced by registration and reporting requirements. If an ownership interest represented by a security does not require regulatory protection by its character, the usual rules do not apply. The federal government and state governments regulate various aspects of securities transactions. Cooperatives use a variety of financing instruments to provide the capital necessary to carry on their business activities. Methods of financing are becoming more imaginative and perhaps further removed from the types of arrangements addressed by cases listed herein. Therefore it is necessary to consider the application of rules relating to securities to cooperatives ' financing instruments. Securities regulation is extremely complex, and only a few general principles can be discussed in this course. Several questions define the issues. 1. Is a particular instrument a security for purpose of regulation? 2. Are there exemptions for cooperative instruments that would otherwise be regulated as securities? 3. To what instruments do exemptions apply, if not to all? 4. What is the extent of the exemptions? 5. What is the difference between issuing instruments that are not securities and issuing securities that are exempt? Both the federal securities regulation laws and state blue sky laws are relevant. The critical importance of determining the status of an instrument issued by a cooperative is highlighted by four factors: 1. The severity of implications of a securities problem for the cooperative and its members, as well as personal liability of the directors, officers, and advisors