## Facts

- Great Lakes Chemical Corporation agreed to buy NSC Technologies Company, LLC, an entity formed to develop pharmaceutical products using L-phenylalanine produced by Monsanto.
- Monsanto Company and its wholly owned subsidiary Sweet Technologies, Inc. owned and controlled NSC, including by appointing NSC’s managers.
- In 1999, defendants decided to sell NSC and solicited offers through an investment bank that contacted Great Lakes.
- NSC had underperformed projections, and defendants allegedly revised internal forecasts downward due to reduced sales and patent-infringement problems.
- Great Lakes alleged defendants presented NSC’s poor performance as explainable and provided projections, while allegedly omitting adverse business information and revised internal estimates.
- The parties negotiated commercial deal terms, including a $5 million purchase-price reduction and a contractual indemnity tied to deviations from projections.
- On May 3, 1999, Great Lakes purchased NSC; NSC’s post-acquisition performance fell far below defendants’ projections.
- Great Lakes sued asserting federal and state securities claims, common-law fraud, and contract-based claims; defendants moved to dismiss, arguing the NSC interests were not “securities.”

## Issues

1. Whether the NSC LLC interests transferred to Great Lakes constituted “stock” within the meaning of the federal securities laws.
2. If not “stock,” whether the transaction nonetheless involved an “investment contract” and therefore a “security” for purposes of § 10(b) and Rule 10b-5.

## Decision

- The court granted defendants’ motion to dismiss the federal securities claims.
- The court held the NSC membership interests were not “stock” as contemplated by the federal securities statutes.
- The court held the transaction did not constitute an “investment contract” under the Howey test because Great Lakes obtained substantial control and was not a passive investor.
- The court concluded the transaction’s economic reality was a negotiated commercial acquisition of a business, not a securities-market investment.

## Legal Principles

- Whether an instrument is a “security” turns on the economic reality of the transaction, not merely labels or partial similarity to stock-like features.
- “Stock” analysis considers common attributes (e.g., dividend rights, negotiability, pledgeability, voting rights, appreciation), but the presence of some attributes does not compel securities-law treatment in a control acquisition.
- An “investment contract” requires an investment in a common enterprise with expected profits to come solely (in substance) from the efforts of others; meaningful purchaser control over management defeats this characterization.
- Federal securities laws principally address investment transactions, not arm’s-length purchases of an operating business between sophisticated parties with negotiated contractual protections.

## Conclusion

Because Great Lakes acquired NSC through a negotiated purchase that provided Great Lakes substantial control over the enterprise, the LLC interests were neither “stock” nor an “investment contract,” and the absence of a covered “security” required dismissal of the § 10(b) and Rule 10b-5 claims.


Great Lakes Chem. Corp. v. Monsanto Co., 96 F. Supp. 2d 376 (D. Del. 2000)