Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—D. Or.: Four-factor test leads court to determine a promissory note is a security, (Jun 25, 2026)

By R. Jason Howard, J.D.

All the defendants can be held jointly and severally liable based on their roles with the seller.

The District of Oregon has denied a motion to dismiss in a case where the plaintiff alleged that the defendants, CuraVentuRx Holdings, LLC (CVR) and several officers and directors, made material misrepresentations and omissions of material fact which led her to invest $600,000 in the company in exchange for a promissory note (the “Note”) which the plaintiff contends is a security under Oregon law (Hoshida v. Horsfall, No. 3:26-cv-00627-SI (D. Or. June 24, 2026)).

CVR. In February 2025, CVR emailed an investment solicitation to the plaintiff seeking $600,000 to “cover an increase in purchase price and pre-closing operational costs for enterprise systems.” The plaintiff agreed to invest, and the parties signed the promissory note. On September 6, 2025, the Note matured and CVR defaulted. Despite repeated requests by the plaintiff, CVR failed to account for her $600,000 investment.

Complaint. The plaintiff alleged that through the loan and the Note, CVR sold a security to her through material misrepresentations and omissions of material fact, and that the defendants, by virtue of their positions with CVR, were liable under Oregon’s securities laws.

In their motion to dismiss, the defendants argued that the Note was not a security but simply a commercial loan, and, thus, they were not liable under Oregon’s securities laws.

Security or commercial loan? At the outset, the court explained that under Oregon securities laws, the first example stated on the list of financial instruments subject to those laws is a “note.” To protect the investing public, the United States Supreme Court in Reves v. Ernst & Young, 494 U.S. 56, 60 (1990) articulated a test for determining whether a note is a security for purposes of federal securities laws. The Reves test begins with the presumption that a note is a “security,” but that presumption can be rebutted if the note “falls into certain judicially created categories of financial instruments that obviously are not securities or if the note in question bears a ‘family resemblance’ to notes in those categories.”

The four factors direct a court to consider: (1) the motivations of reasonable buyers and sellers for entering the transaction; (2) the plan of distribution of the instrument; (3) the reasonable expectations of the investing public; and (4) whether there are any risk-reducing factors that would make application of the securities laws unnecessary.

The defendants argued that the plaintiff’s Note bore a “family resemblance” to notes in the categories of financial instruments that obviously are not securities and that the plaintiff failed to plausibly allege otherwise.

Before addressing the question of whether the plaintiff’s promissory note was a security, the court explained that when the sale of a security is made by a business entity, the individuals affiliated with that entity can be held jointly and severally liable to the purchaser if they offered or sold a security in Oregon “by means of an untrue statement of a material fact or an omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading.”

Turning next to factors, the court found that the first weighed in favor of the Note being a security after finding that the plaintiff’s investment was for general business use and to finance substantial investments which fit squarely under the Reves test’s motivation factor.

The second factor was determined to be neutral as the court explained that even a sale to only one person is not dispositive and it must consider the needs of unsophisticated individual investors like the plaintiff.

The third factor weighed in favor of the plaintiff’s Note being a security. The court stated that “considering the unsecured status of the note, the high rate of interest, the note’s self-identification as an ‘investment,’ and the fact that defendants were not an operating business but more like a venture capital fund, the court finds that this factor strongly supports finding that the note is a security.”

The fourth factor was also found to support the conclusion that the plaintiff’s Note was a security. For this factor, the court considered whether any other “regulatory scheme significantly reduces the risk of the instrument, thereby rendering application of a securities law unnecessary.” Here, the court determined that there were no identified risk reduction factors applicable to the plaintiff’s Note. The absence of any risk-reduction factors like collateral or insurance supported the conclusion that the note was a security.

The court also determined that all the defendants could be held jointly and severally liable based on their roles with the seller.

Conclusion. The court denied the defendants’ motion to dismiss.

The case is No. 3:26-cv-00627-SI.

Judge: Simon, M.

Attorneys: Thomas Bode, Jr. (Larkins Vacura Kayser) for Susan Hoshida. Cameron Zangenehzadeh (Stoel Rives LLP) for Joseph Horsfall.

LitigationEnforcement: CorporateGovernance DirectorsOfficers FraudManipulation InvestorEducation OregonNews