Robinson v. Glynn
United States Court of Appeals for the Fourth Circuit
349 F.3d 166 (4th Cir. 2003)
James Robinson (plaintiff) loaned Thomas Glynn (defendant) $1 million to field-test technology for GeoPhone Company, LLC, and agreed to invest $24 million more if the technology worked, only to later learn Glynn had run the test without using the technology and lied about its success. After investing the additional money, Robinson took an active role in GeoPhone -- appointing board members, taking a board seat himself, and serving as treasurer -- before discovering the fraud and suing under federal securities law, claiming his LLC membership interest was a security. The district court dismissed the claim, holding Robinson's interest wasn't a 'security' under the Securities Exchange Act, and Robinson appealed.
Whether a membership interest in an LLC qualifies as a security when the individual holding the interest maintains active control over that interest.