United States v. Leonard, No. 05-5523-cr (2d Cir. June 11, 2008) (Kearse, Calabresi, Katzmann, CJJ)
In this case, the court concludes that interests in film production companies were “investment contracts,” and hence securities, under federal securities law. It also holds, however, that the district court erred in treating the entire cost of the securities as the loss amount under the guidelines.
Facts
The defendants ran sales offices that peddled interests in LLC’s formed to finance the production and distribution of motion pictures. Potential investors were solicited over the phone and, if they expressed an interest, would be sent offering materials, including brochures, operating agreements, and other such documents. Investors could purchase $10,000 “units” by completing and mailing back a subscription agreement.
The defendants’ sales offices would receive a commission of around 45% for each unit sold. This was the fraud – although the offering materials indicated that a commission would …