The Security and Exchange Commission filed a complaint alleges that Mark Ray, a Denver resident, was the mastermind of a scheme for the purported purchase and immediate resale of large numbers of cattle. I don’t recall cattle showing up in the definition of a “security.”
The first part of the scheme is labeled a Ponzi scheme in the complaint. Mr. Ray told investors they were investing in wholesale, commercial cattle trades. They were often told the specifics about the cattle and which ranch the they were located. The SEC contacted the ranches and confirmed they had not engaged in any cattle trading with Mr. Ray.
Mr. Ray had no cattle to support his supposed investments. He used later investors’ money to repay prior investors. Classic Ponzi scheme.
Big Hat, No Cattle.
Mr. Ray later got more sophisticated and sold promissory notes to investors that were supposed to be used in cattle trading. It’s hard to argue that those notes are not securities
The direct investments in cattle are not clearly securities. Mr. Ray settled with the SEC so we won’t see the argument.
The SEC broadly states that the agreement called for the investor to make an investment of money with the expectation of profit. The investors relied on Mr. Ray’s purported skill and knowledge to generate profits. Many of the investors knew little of the industry.
The SEC made the classic Howey test argument about the nature of the transactions. It was good enough for Mr. Ray’s lawyers to agree to settlement, rather than fight the SEC.
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