## Facts

- Richard Abrams, an individual investor, entered a privately negotiated agreement with Oppenheimer Government Securities, Inc. (OGS) on February 6, 1981 to buy approximately $200,000 of GNMA 30-year, 13% mortgage-backed pass-through certificates for future delivery, with settlement set for May 20, 1981.
- Abrams and OGS’s broker, James Zurek, orally agreed Abrams would post a 10% deposit; Abrams paid it on March 10, 1981.
- On April 10, 1981, OGS demanded an additional $9,647 after an asserted decline in GNMA market value; Abrams refused, claiming he was never told additional deposits could be required and believed the initial deposit would be applied to the purchase price.
- OGS contended the deposit would be refunded at completion but could be reduced to cover losses, depending on the transaction’s outcome.
- Abrams alleged Zurek made material misrepresentations about the relationship between GNMA certificate values and the prime lending rate, inducing Abrams to enter the transaction.
- After Abrams refused to post additional funds, OGS sold Abrams’s forward contract, retained most of the deposit as loss coverage, and returned roughly $1,700.
- Abrams sued asserting, among other claims, federal securities antifraud violations under the Securities Act of 1933 and the Securities Exchange Act of 1934.

## Issues

1. Whether a GNMA forward contract constitutes a “purchase” or “sale” of the underlying GNMA securities such that federal securities antifraud provisions apply, even if the forward contract itself is not a “security.”
2. Whether applying securities antifraud provisions to the transaction would improperly intrude upon the Commodity Futures Trading Commission’s jurisdiction.

## Decision

- The Seventh Circuit affirmed the district court’s denial of OGS’s motion to dismiss the federal securities law counts.
- The court held a GNMA forward contract is a binding contract for the purchase or sale of GNMA securities and therefore falls within the “purchase” and “sale” language of the federal securities antifraud provisions.
- The court rejected the argument that applying securities antifraud provisions conflicted with CFTC jurisdiction, distinguishing privately negotiated forwards from exchange-traded futures.

## Legal Principles

- Federal securities antifraud provisions apply to deceptive conduct “in connection with the purchase or sale” of a security; the focus is on the transaction’s connection to a security, not solely on whether the contract instrument itself is a statutory “security.”
- A firm commitment contract for future delivery of securities can constitute a “purchase” or “sale” for antifraud purposes when it obligates parties to buy and sell identified securities.
- Over-the-counter, privately negotiated forward contracts lack key features of regulated futures (standardization and exchange trading) and therefore do not, by that fact alone, fall within exclusive CFTC futures jurisdiction.

## Conclusion

The court held that a privately negotiated GNMA forward agreement is treated as a purchase or sale of the underlying GNMA securities for purposes of federal securities antifraud provisions, allowing Abrams’s federal securities fraud claims to proceed.


Abrams v. Oppenheimer Gov’t Sec., Inc., 737 F.2d 582 (7th Cir. 1984)