This article is the first in an occasional series on the definition of a “security.” The answer is important. When a financial instrument qualifies as a security, it unlocks a set of laws and regulations that would not otherwise apply. These include two statutes that are discussed extensively below: the Securities Act of 1933 and the Securities Exchange Act of 1934 (collectively, the “Securities Acts” or the “Acts”). In particular, this article examines the Acts’ definition of “security,” which references “any note.” Courts have constructed the Family Resemblance Test to determine whether a note relates to investments and, thus, meets the Acts’ definition. This test, and its implications, are addressed in greater detail below:
The Securities Acts arose from the cinders of the 1929 stock market crash. Prior to that, the federal government exercised almost no regulation over the securities market, leaving that job to the states. From this environment grew untamed speculation, cronyism and, eventually, economic collapse. Congress introduced the Acts to regulate the market and, thus, prevent those abuses.
The Acts impose comprehensive regulation over “investments” – no matter the structure or label. Their goal is to extend the regulatory net wide enough to address any scheme a fraudster might attempt. To this end, the Acts grant the term “security” a broad definition:
any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value there-of), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a security, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
This definition aside, Congress did not intend for the Acts to become a federal remedy for all types of fraud. For this reason, courts do not interpret the phrase “any note” to mean “literally ‘any note’.” Rather, they interpret it consistent with the Acts’ purpose: regulating investments. In practice, this means a court will determine whether the Acts cover an alleged note by examining whether it resembles an investment.
To do that, they apply the Family Resemblance Test (or the “Test”).
As articulated by the Supreme Court, the Test helps distinguish between “notes issued in an investment context (which are ‘securities’) from notes issued in a commercial or consumer context (which are not).” Mechanically, it proceeds in two stages, each meant to determine whether the note in question resembles a non-security. First, the note is presumed a security unless it bears a strong resemblance to one of the categories of non-securities enumerated in Exchange Nat’l Bank of Chicago v. Touche Ross & Co., (544 F.2d 1126, 1137 (2d Cir.1976)):
(1) A note delivered in consumer financing; (2) A note secured by a mortgage on a home; (3) A short-term note secured by a lien on a small business or some of its assets; (4) A note evidencing a ‘character’ loan to a bank customer; (5) Short-term notes secured by an assignment of accounts receivable, (6) A note which simply formalizes an open-account debt incurred in the ordinary course of business (particularly if, as in the case of the customer of a broker, it is collateralized), and (7) Notes evidencing loans by commercial banks for current operations.
Second, if there is not a strong resemblance to the enumerated items, courts will consider whether a new category of non-security should be added.
To answer both inquiries, courts examine the same four factors: (1) The buyer’s or seller’s motivation for the transaction in question; (2) The plan for distributing the note; (3) The public’s reasonable expectation as to whether the note is a security; and (4) Whether another regulatory scheme safeguards the transaction or note. The eventual result depends not on the note’s form or label, but the “economic reality” of the transaction.
Courts apply the Test, but with two quirks that have developed over the years. First, while technically, the Test is meant to determine whether the instrument resembles a non-security, most courts have framed it as determining whether the instrument resembles a security. Second, because the Test’s two inquiries rely on the same four factors, in effect, they “collapse into a single inquiry.”
THE FOUR FACTORS
The factors are considered as a whole – with no single one being dispositive. Nor do any particular number of factors have to favor a security (or a non-security) for the instrument to be categorized as such. In fact, courts may conclude that, on the whole, a note falls into a particular category, even though one or two factors weigh in the opposite direction. Similarly, depending on the circumstances of a case, the court may dismiss certain factors as irrelevant or find them inconclusive.
The bottom line is that the Test does not abide by a formula. It adjusts to the issues that best capture the “economic reality” of the transaction.
Buyer’s and Seller’s motivations
The first factor asks what would motivate a reasonable buyer or seller to enter into a given transaction. Like the Test in general, the “motivation” inquiry does not restrict courts to a precise formula. For example, they do not have to allocate equal weight to the buyer’s and seller’s motivations. Instead, based on the transaction, they can rely more on one side’s motivation or even find one side’s motivation, by itself, determinative.
The motivation inquiry always comes back to the Acts’ purpose: regulating “investments.” So if the seller’s motivation is investment or profit, the note inches closer to a security. But if the transaction is driven by a consumer or commercial purpose, the note leans toward a non-security.
Plans for the money: General business use or commercial use?
Usually, when a party sells notes, its motivation follows its plans for the money. So if the seller wants money for “general use” in its business, the note is more like a security. By contrast, a targeted loan, such as one to close a cash-flow deficit or purchase a specific asset, is less like a security. Some courts have explained the issue as funding the business generally (investment) versus funding a single “component” of the business (commercial or non-security).
When analyzing which category to assign a given note, the first step is defining the business generally – as distinct from its individual components. In the initial cases addressing the issue, courts found few objective rules to assist the effort. At times, this left them to make judgment calls regarding what qualified as the business generally.
For example, Pollack had the Second Circuit decide whether notes funding individual construction projects fed the seller’s general business activity. In that instance, the seller was a company called Eagle Funding, which sold mortgage participations. Purportedly, the underlying mortgages funded various cooperative conversions and construction projects. The defendant was Laidlaw, an investment management firm that advised the plaintiffs on their finances. Contrary to the plaintiffs’ standing instructions, a Laidlaw advisor dumped their money into Eagle’s product. But the plan ended in disaster, with Eagle going bankrupt and the mortgages being exposed as uncollateralized and, potentially, “fictitious.” After discovering this, the plaintiffs sued Laidlaw for fraud under the Acts. The district court granted the firm’s motion to dismiss, finding Eagle had a commercial purpose because it earned a fee for servicing the mortgages and obtained funds for additional loan deals. The Second Circuit reversed. Unlike the district court, it concluded that earning their fees and selling additional loans was Eagle’s entire business. So the mortgage participations raised funds for Eagle’s “general business activities.”
In Stoiber, the DC Circuit also had to define a party’s “general business activities.” There, Stoiber sold $495,000 of notes to 13 investment advisory clients – all of them close friends. He used most of the proceeds to invest in commodities. As Stoiber was in the business of selling commodities, he argued that he merely purchased inventory and resold it for a profit. The Court determined that trading commodities on his own behalf was not, in fact, Stoiber’s business. Rather, he traded commodities on his clients’ behalf and earned commissions. But even if Stoiber’s business were personal commodities trading, buying the commodities would go to the “core” of that business. As such, the notes raised money for general business use, rather than a specific commercial purpose, like closing a cash-flow deficit or buying a specific asset.
The Pollack and Stoiber courts were not direct about what marked the activity as the seller’s entire business or the “core” of his business. This made “general business use” tougher to identify. Subsequent case law mitigated the problem by offering clear examples of commercial notes. The contrast makes it easier to spot and distinguish both kinds of notes.
The typical commercial note funds a single event or transaction. Consider Matthews, where the defendants sold a $1,200,000 note to finance the purchase of a hospital. The Court observed that the note’s clear purpose was financing the acquisition of one asset – the hospital – and not to raise money for general business use. In part, based on this issue, it deemed the parties’ motivations commercial. Another example is Eagle Trim, where the loan financed the sale of one division of an automotive supply company. The Court viewed this as a purchase of the company’s division, not an investment in the division itself. So the purpose was commercial, and the motivation weighed against finding the instrument a security.
The difference between these notes’ purposes and the purposes in Pollack and Stoiber is stark. And for that reason, the comparison forms a good roadmap for distinguishing general business from commercial use. Essentially, if the note does not fund a one-time project, with a known lifespan, the odds that it funds the business in general are high.
Defining a “cash flow deficit”
Not every loan to a struggling business qualifies as “closing a cash-flow deficit.” Rather, cash-flow deficits stretch over defined and relatively short periods of time “when cash inflows and outflows do not match up.” Moreover, loans meant to correct these issues only provide relief for those limited periods.
Such was the case in Zhang-Kirkpatrick, where the defendant company, Layer Saver, sustained its business through periodic loans from one of its members. But when the member took significant losses on another investment, he was unable to continue making the loans. This led Layer Saver to the plaintiff, who extended a $150,000 loan in return for a promissory note. The note was short term – maturing only six months after execution – and secured by the “intellectual property” from a shipping system Layer Saver used. The district court concluded the plaintiff’s loan was “used to cover necessary costs to continue doing business.” The Court also emphasized that Layer Saver did not obtain the loan “to grow a reserve, or for growth of the company.” As such, the motivation prong weighed against declaring the note a security.
Nevertheless, a loan to a struggling company can still have a security-related motive – depending on how the business intends to use the money. The comparison between Zhang-Kirkpatrick and McNabb helps illustrate the point. McNabb was a financial advisor who, over a 15-month period, borrowed approximately $690k from six of his clients. In return, the clients received promissory notes, which matured anywhere from 17 months to 6 years in the future. According to McNabb, he needed the money to help reorganize his business, which was struggling due to personal financial trouble. As such, he used the funds to cover general business overhead.  The SEC, and later the Ninth Circuit, found that McNabb raised the funds for use in his business generally, not to correct a cash flow issue. So the notes resembled a security.
The difference between these cases, and the concepts they represent, is best understood as the difference between offense and defense. In Zhang-Kirkpatrick, Layer Saver was playing defense. As the Court observed, the company did not procure a loan “to grow a reserve” or grow in general. It procured a loan to plug holes in its cash flow and keep the company afloat. Despite a similar predicament, McNabb was playing offense. He wanted to “reorganize” his business. This suggests he was retooling the company with an eye toward future success.
The notes’ maturity dates align with these purposes. The short-term note in Zhang-Kirkpatrick befits a company focused on surviving a dangerous six-month stretch. By contrast, the longer-term notes in McNabb look like investments in a business planning on eventual success. So again, even if both businesses are struggling in the present, their plans for the future determine where the notes fall on the motivation scale.
When the return depends on the seller’s success
At a basic level, an investment is money the investor contributes to an enterprise, on the belief it will appreciate in value. So it makes sense that a note inches closer to an investment when the amount of repayment depends on the note seller’s future business success. Accordingly, the note’s repayment terms can serve as a telltale. If the amount of repayment rises with the business’s success and falls with its losses, the more likely motive is investment. On the other hand, when repayment is a fixed amount, unrelated to the seller’s fortunes, the note looks less like an investment. The buyer’s motivation
The buyer’s motivation depends on profit – as in, the extent to which the desire to profit led the buyer into the transaction. Often, at least with regard to notes, the buyer finds profit through interest income. So naturally, if the note bears a favorable interest rate, courts tend to conclude profit was the buyer’s main goal. That said, the threshold for a “favorable” rate is difficult to pinpoint. In cases where the instrument was a security, the rate’s strength was clear. For example, the rates in Thompson (36-60% annually), Wallenbrock (approximately 20%), and Stoiber (6-12%) were all high enough that few would doubt they enticed the note buyers. Conversely, when the instruments have not been deemed securities, the rate was low or non-existent. Take Matthews, where the note did not charge any interest. So again, a precise threshold may be lacking or unnecessary.
That aside, the issue always reverts to the main inquiry: whether the transaction’s purpose was investment. So even if the note bears a low interest rate, or a fixed interest rate, the buyer may still be purchasing it as an investment. And this would make the note more like a security.
This was the case in Pollack, where the mortgage participations carried a fixed interest rate. Mainly for that reason, the district court found the buyers stood to make no more than a small profit. So according to the district court, their motives were commercial. But in reversing the decision, the Second Circuit held that, despite their low profitability, the notes were placed in the buyers’ investment portfolios. As such, they could not be characterized as anything other than investments, and so their motivation had to cut toward a security.
Plan of Distribution
The “distribution plan” factor examines whether the note was subject to common trading or speculation. If it was, the distribution is more in line with a security.
Common trading – the basics
To establish common trading, plaintiffs enjoy a varied menu of options. For one, standing alone, offer and sale to a “broad segment of the public” establishes common trading. But even without this, other characteristics can build a strong case. These include the sale of the instruments on an exchange, the transferability of the instruments, or the existence of an actual (not merely possible) secondary market.
In Wallenbrock, the defendant, Wallenbrock, did not engage in a marketing campaign, but still offered notes to anyone who demonstrated the ability to pay and provided basic personal information (name, address, social security number, etc.). He also offered a one-time finder’s fee for successful referrals. In sum, this meant the notes were widely available in that anyone with enough money had to do little more than complete a form. As such, his distribution plan indicated the notes were more like a security.
Further, distribution plans that are restricted initially can morph into common trading. This can happen when the note’s originator has “evident interest” in widening distribution and the notes have “broad availability.” For example, in Thompson, the defendant began by selling notes to family and friends only. But before long, he expanded distribution by offering the notes to anyone with $100,000 to invest. Eventually, this turned his distribution plan into a large operation, with a marketing specialist to arrange calls with potential buyers, seminars in malls, a public website advertising the notes, and a program to train agents to sell the notes on commission. From this, the Court concluded that, as a practical matter, the defendant offered the notes to the general public. So what may have begun as a small distribution plan widened and, thus, made the notes look more like securities.
Number of buyers
The total number of buyers, while important, is not dispositive. Rather, it must be weighed against the individual buyers’ need for protection from the securities laws. For example, in McNabb, the notes were only sold to six individuals, which the Court did not consider a broad segment of the public. On the other hand, the Court found that the buyers were unsophisticated and, therefore, could have benefited from the Securities Acts. Ultimately, this made the factor a wash (though overall, the Court ruled the notes were securities).
Notes are less like securities when the distribution plan is restricted to “sophisticated financial or commercial institutions.” This can have the effect of limiting the pool of potential buyers to those who can research and obtain information on the seller. In addition, the Acts exist to protect investors, and sophisticated investors have less need for that protection. So notes aimed at them are less likely to require the Acts’ scrutiny and, thus, less likely to be securities.
Also relevant is the secondary market (if any) for the note. In some cases, lenders prohibit resale of the instrument without their consent. This further constricts the scope of distribution. It also limits the chances unsophisticated investors will acquire the note in the secondary market. So courts tend to view a limited secondary market as indicative of a non-security.
Often, when instruments are deemed non-securities, there is virtually no distribution. Instead, the note simply documents a one-time transaction between two private parties. Such was the case in Matthews, where the note financed a single purchase of one asset, Zhang-Kirkpatrick, where one note buyer lent money to help with a company’s sudden drop in revenue, and Eagle Trim, where the loan helped one auto supply company buy one of its competitors’ divisions.
Reasonable expectations of the investing public
For this factor, courts evaluate whether the investing public had the reasonable expectation that the note was a security. This inquiry occurs from the perspective of a reasonable investor. So the court asks whether such an investor would view the notes as investments, not whether the investors in the particular case viewed the notes as such.
On this point, the originator’s characterization of the note is strong evidence of how the reasonable investor would see it. Indeed, where the originator calls the note an “investment” and there are no “countervailing factors” that would cause a reasonable investor to think otherwise, a prospective purchaser can take the originator at its word. However, the opposite is not always true. That is, the seller does not foreclose the note from being a security simply by failing to use “investment.”
Still, a statement that the note is not an investment will weigh against declaring it a security. This qualifies as express notice to purchasers that the instrument is not an investment. So usually, it means the “investing public would not expect the notes to be securities.”
Courts treat this factor as a “one-way ratchet” in that it can turn a note into a security, even if the note looks like a non-security under the other three factors. But the principle does not work in reverse. That is, if the other three factors indicate the note is a security, the public’s expectations of a non-security will not force a different conclusion.
As with the second factor, this factor plays no role in commercial transactions between two or three parties. Just as these transactions require no distribution to the public, they are not advertised to the public. This leaves no public perception for courts to analyze.
Other legal authority that reduces the risk of the instrument
Again, Congress created the Acts to protect investors and investments. Still, in some cases, additional legal protections, like a regulatory scheme, may cover a given note and, thus, render the Acts unnecessary. In these instances, the Court can rule the note a non-security without increasing the investor’s risk. Conversely, when there are no additional protections, this factor calls for labeling the note a security. Otherwise, the investor would be left vulnerable – a result the Acts are supposed to prevent. This part of the Test is significant, as the “foremost threat to the investor is the risk of losing his entire investment.” 
For an additional protection to supplant the Acts, it must shield investors from the initial harm or facilitate recovery after the injury. Examples of the latter category might be insurance or collateral.
While some federal regulations offer sufficient protection, this does not mean that simply any regulatory scheme will render the securities laws unnecessary. In the Acts, Congress chose a broad definition for “security” and, thus, demonstrated its intent to assume regulatory power over a broad market. So to cut against making the instrument a security, the alternative regulatory scheme would need to be “quite comprehensive.” In fact, rarely have courts bestowed this honor on legal authority other than the FDIC’s regulations or ERISA.
Instruments backed by collateral may avoid the securities laws. Similar to the regulatory schemes, this does not mean any collateral will be enough to make the Acts unnecessary. But courts find that collateral is a “significant risk-reducing factor,” which weighs against applying the Acts.  For example, in Eagle Trim, the defendant’s loan to the plaintiff was secured by a mortgage on property the plaintiff owned. The Court found that this reduced the risk of the instrument and, therefore, weighed against declaring it a security.
In most cases, state regulation does not reduce the risk enough to make the Acts unnecessary. As the Ninth Circuit held in Wallenbrock, “A patch-work of state regulation, which applies to most business entities in some fashion or another, cannot displace the federal regime.” So weighed against Congress’s desire to establish “comprehensive nation-wide securities regulation,” the regulations of a single state are “not nearly enough” to substitute for the Acts.
BALANCING THE FACTORS
With all the factors having been analyzed, the Test instructs courts to determine whether, on the whole, the note resembles one of the non-securities listed in Exchange Nat’l Bank. But on a practical level, it is atypical for courts to proceed this way.
Instead, they do the opposite: analyze whether the instrument is a security. Unlike non-securities, the law does not provide an enumerated list of securities. This leaves courts with the presumption that the instrument is a security and the Test’s factors. Therefore, if, based on the factors, the instrument resembles a security, it will be labeled as such. And if it does not resemble a security, it will be labeled a non-security.
Before entering into a transaction, it is important to know the risks. The difference between a security and non-security is the difference between two separate collections of laws. So knowing whether the note being transacted qualifies as a security gives parties a better idea of their risks. As such, it helps to understand the Family Resemblance Test.
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 Reves v. Ernst & Young, 494 U.S. 56, 60 (1990); See also SEC v. Thompson, 732 F. 3d 1151, 1157 (10th Cir 2013) (Adding that, in eliminating market abuses, Congress meant to “restore investors’ confidence in the financial markets”); See also Larry Bumgardner, Grazidiano School of Business and Management, Pepperdine University, A Brief History of the 1930’s Securities Law in the United States – And the Potential Lessons for Today, Journal of Global Business Management, Vol. 4, No. 1, April 2008, at p. 2
 Id. at pp. 1-2
 Reves, 494 U.S. at 60; SEC v. Thompson, 732 F. 3d at 1157
 McNabb v. SEC, 298 F.3d 1126, 1131 (9th Cir 2002)(Emphasis in original); Stoiber v. SEC, 161 F.3d 745, 749 (D.C. Cir 1998)
 Thompson, 732 F. 3d at 1157, quoting Reves, 494 U.S. at 62; Zhang-Kirkpatrick v. Layer Saver LLC, 84 F.Supp.3d 757, 762 (ND Ill. 2015), quoting Reves, 494 U.S. at 61. (The definition of “security” in the Acts is “sufficiently broad and general ‘to encompass virtually any instrument that might be sold as an investment’.”)
 15 U.S.C. §77b(a)(1)
 Thompson, 732 F. 3d at 1158, quoting Marine Bank v. Weaver, 455 U.S. 551, 556 (1982)
 Thompson, 732 F. 3d at 1158, quoting Reves, 494 U.S. at 63; McNabb, 298 F.3d at 1131
 Thompson, 732 F. 3d at 1158, quoting Reves, 494 U.S. at 63; McNabb, 298 F.3d at 1131, quoting Reves, 494 U.S. at 63
 McNabb, 298 F.3d at 1131
 Thompson, 732 F. 3d at 1158, quoting Reves, 494 U.S. at 63
 See e.g., Stoiber, 161 F.3d at 749
 See e.g., Pollack v. Laidlaw Holdings, 27 F.3d 808, 811-812 (2nd Cir. 1994)
 See e.g., Thompson, 732 F. 3d at 1160
 SEC v. Wallenbrock, 313 F.3d 532, 537 (9th Cir 2002) (Adopting Supreme Court framing)
 Thompson, 732 F. 3d at 1160, quoting Wallenbrock, 313 F.3d at 537
 Wallenbrock, 313 F.3d at 537; See also Thompson, 732 F. 3d at 1158 (When evaluating the instrument, courts favor substance over form and emphasize the “economic reality” of the transaction)
 See e.g., Stoiber, 161 F.3d at 752
 See e.g., McNabb, 298 F.3d at 1132
 Thompson, 732 F. 3d at 1158; Wallenbrock, 313 F.3d at 538; Zhang-Kirkpatrick, 84 F.Supp.3d at 764
 McNabb v. SEC, 298 F.3d 1126, 1132 (9th Cir 2002)
 Thompson, 732 F. 3d at 1164; See Chao Xia Zhang-Kirkpatrick, 84 F. Supp. 3d at 764 (Holding the defendant’s motivation was more relevant, where the transaction was conceived to address its cash flow issues); See Pollack, 27 F.3d at 813 (Holding that buyer’s motivation was so clearly investment-related that this factor weighed toward classifying the instrument as a security, even if the seller had a commercial purpose)
 Pollack, 27 F.3d at 812-813; Thompson, 732 F. 3d at 1162; Wallenbrock, 313 F.3d at 538; McNabb, 298 F.3d at 1131
 Pollack, 27 F.3d at 813
 Thompson, 732 F. 3d at 1162; Wallenbrock, 313 F.3d at 538; McNabb, 298 F.3d at 1131; See Matthews v. Stolier, 207 F.Supp.3d 678, 684 (E.D. La. 2016)
 Stoiber, 161 F.3d at 750
 Id. at 750
 Id. at 809-810
 Id. at 810
 Pollack, 27 F.3d at 812-813
 Stoiber, 161 F.3d at 747
 Id. at 749
 Id. at 750
 Matthews, 207 F.Supp.3d at 680
 Id. at 684
 Eagle Trim v. Eagle-Picher Industries, 205 F.Supp.2d. 746, 748 (E.D. Mich. 2002)
 Id.; See also Intelligent Digital Systems v. Visual Management Systems, 683 F.Supp.2d 278, 284-285 (E.D.N.Y. 2010) (Motivation leaned toward a non-security where the note financed one party’s sale of proprietary technology to the other)
 See LeBrun v. Kuswa, 24 F.Supp.2d 641, 647 (E.D. La. 1998) (Holding the motivation prong cut toward making a loan to a business a security, where the business had no apparent cash flow issue and the money went to several components of the business, rather than one discrete component)
 McNabb, 298 F.3d at 1131, quoting Stoiber, 161 F.3d at 750; See also Wallenbrock, 313 F.3d at 538 (Finding loans were not for purposes of correcting a cash flow deficit, in part, because they could “hardly be described as stop-gap measures”)
 See Zhang-Kirkpatrick, 84 F.Supp.3d at 761; See McNabb, 298 F.3d at 1131, quoting Stoiber, 161 F.3d at 750
 Zhang-Kirkpatrick, 84 F.Supp.3d at 761
 Id. at 764; See also Foxfield Villa v. Robben, 309 F. Supp. 3d 959, 974-975 (D. Kansas 2018) (Motivation weighed against declaring the instrument a security when the loan’s purpose was only to finance plaintiffs’ “short-term cash-flow issues until the company could start selling lots”)
 McNabb, 298 F.3d at 1129
 Id. at 1132
 See Foxfield Villa, 309 F. Supp. at 974-975 (Holding that short maturity date weighed toward the note being a non-security)
 See Intelligent Digital Systems, 683 F.Supp.2d at 284 (“The motivation of the seller is not to invest in the future success of the buyer, where the price to be paid might vary with the success, or lack thereof, of the buyer’s business.”).
 See Id.; See Eagle Trim, 205 F.Supp.2d. at 751
 Thompson, 732 F.3d at 1162; Wallenbrock, 313 F.3d at 538; McNabb, 298 F.3d at 1131
 Reves, 494 U.S. at 68, n. 4
 Thompson, 732 F. 3d at 1162-1163; See Wallenbrock, 313 F.3d at 538; Stoiber, 161 F.3d at 750
 Thompson, 732 F. 3d at 1162-1163; Wallenbrock, 313 F.3d at 538; Stoiber, 161 F.3d at 747
 Matthews, 207 F.Supp.3d at 684
 See Pollack, 27 F.3d at 813
 Thompson, 732 F. 3d at 1164, quoting Reves, 494 U.S. at 68; McNabb, 298 F.3d at 1132; Stoiber, 161 F.3d at 751
 Thompson, 732 F. 3d at 1164
 See Stoiber, 161 F.3d at 750-751
 Wallenbrock, 313 F.3d at 539
 Thompson, 732 F. 3d at 1164, quoting Wallenbrock, 313 F.3d at 539
 Thompson, 732 F. 3d at 1165
 Id. at 1167
 McNabb, 298 F.3d at 1132
 Banco Español de Credito v. Security Pacific Nat’l Bank, 973 F.2d 51, 55 (2nd Cir. 1992); Proctor & Gamble v. Bankers Trust Co., 925 F. Supp. 1270, 1280 (S.D. Ohio 1996)
 Banco Español de Credito, 973 F.2d at 55
 See McNabb, 298 F.3d at 1132 (Concluding that the fact the six purchasers were unsophisticated and, thus, would benefit from protection in the Securities Acts, weighed toward ruling the instrument a “security”)
 Banco Español, 973 F.Supp. at 55
 See Id.
 Id.; See Pollack, 27 F.3d at 813 (Finding that allowing resales cut toward making the instrument a security)
 Matthews, 207 F.Supp.3d at 680
 Zhang-Kirkpatrick, 84 F.Supp.3d at 764
 Eagle Trim, 205 F.Supp.2d. at 751
 Wallenbrock, 313 F.3d at 539; Thompson, 732 F. 3d at 1167, quoting Stoiber, 161 F.3d at 751
 Wallenbrock, 313 F.3d at 539
 Thompson, 732 F. 3d at 1169, quoting Reves, 494 U.S. at 69
 See Wallenbrock, 313 F.3d at 539
 Notice can come in the form of offering documents or documents governing the instrument. Kirschner v. JP Morgan Chase et al, 17 cv 334 (PGG), at *18 (S.D.N.Y. May 5, 2020)
 Thompson, 732 F. 3d at 1167, quoting Stoiber, 161 F.3d at 751 (internal quotations omitted)
 Stoiber, 161 F.3d at 751; See Matthews, 309 F. Supp. 3d at 685 (“The court will consider instruments to be ‘securities’ on the basis of such public expectations, even where an economic analysis of the circumstances of the particular transaction might suggest that the instruments are not securities as used in that transaction.”)
 Stoiber, 161 F.3d at 751
 See e.g., LeBrun, 24 F.Supp.2d at 648 (Holding the third prong weighed against finding the note a security because “there was no advertising or marketing of these notes to the general public, but only a specific inquiry into a select group of individuals”)
 See e.g., Reves, 494 U.S. at 61
 Stoiber, 161 F.3d at 751
 Thompson, 732 F. 3d at 1168-1169, quoting Reves, 494 U.S. at 67; See McNabb, 298 F.3d at 1132-1133 (Without application of the Securities Laws, the lender would be open to significant risk)
 Matthews, 207 F.Supp.3d at 685
 Despite this factor’s importance, at least one court has held that, if the first three factors slant “heavily” toward a non-security, analysis of the fourth factor is unnecessary. Intelligent Digital Systems, 683 F. Supp. 2d at 285
 Stoiber, 161 F.3d at 752
 Eagle Trim, 205 F.Supp.2d. at 753
 Wallenbrock, 313 F.3d at 540
 Id. (internal citations omitted); See Banco Español de Credito, 973 F.Supp. at 55 (Allowing regulations from the Comptroller of Currency to stand in the Acts’ place)
 Thompson, 732 F. 3d at 1169; Wallenbrock, 313 F.3d at 539; See Zhang-Kirkpatrick, 84 F.Supp.3d at 765-766; See Matthews, 207 F.Supp.3d at 685-686
 Bass v. Janney Montgomery Scott, Inc., 210 F.3d 577, 585 (6th Cir. 2000); Eagle Trim, 205 F.Supp.2d. at 753; Matthews, 207 F.Supp.3d at 685-686 (Finding the fourth factor weighed against application of the Acts where the loan was secured by a lien on a hospital license); See Zhang-Kirkpatrick, 84 F.Supp.3d at 765-766 (Finding no security for a loan secured by intellectual property for one of the defendants’ shipping system)
 To affect the analysis, the collateral must actually exist. In Wallenbrock, the defendant sold promissory notes that he claimed were secured by receivables from a Malaysian glove manufacturer. But a prior SEC investigation revealed he never purchased or owned any receivables. So the Court disregarded the supposed collateral. Wallenbrock, 313 F.3d at 539
 Eagle Trim, 205 F.Supp.2d. at 753
 Wallenbrock, 313 F.3d at 540
 See e.g., Stoiber, 161 F.3d at 749
 See Id. at 752 (Comparing the instrument to the enumerated items as a whole)
 Wallenbrock, 313 F.3d at 537 (“Although the multi-factor test was originally conceived as a method of ascertaining whether an instrument resembles a non-security, the Supreme Court has since framed it as an analysis of whether an instrument denominated a ‘note’ is a security.”)
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