## Facts

- Procter & Gamble Co. (P&G) entered into two complex, leveraged over-the-counter derivatives transactions with Bankers Trust Company and BT Securities Corp. (collectively, BT), structured as interest-rate swaps.
- The first transaction (Nov. 4, 1993) was a “5s/30s” swap tied to the yield on five-year U.S. Treasury notes and the price of thirty-year U.S. Treasury bonds.
- The second transaction (Feb. 14, 1994) was a Deutschemark (DM) swap tied to a four-year German Deutschemark interest rate.
- Both swaps used a large “notional” principal amount solely to calculate periodic cash-flow exchanges; neither party was obligated to pay or repay the notional principal.
- P&G alleged BT misrepresented and failed to disclose material risks, pricing, and structural features of the swaps and purportedly exploited an advisory or fiduciary relationship.
- After adverse interest-rate movements, P&G alleged losses exceeding $100 million and sued asserting common-law tort and fiduciary claims and statutory claims under federal and Ohio securities laws, the Commodity Exchange Act, and the Ohio Deceptive Trade Practices Act.

## Issues

1. Whether the leveraged swap agreements constituted “securities” (including “notes” or “evidence of indebtedness”) under federal securities laws and Ohio Blue Sky laws.
2. Whether the swaps were “futures contracts” regulated by the Commodity Exchange Act.
3. Whether BT owed P&G a fiduciary duty or tort duties supporting claims for negligent misrepresentation and negligence in connection with structuring and selling the swaps.
4. Whether the Ohio Deceptive Trade Practices Act applied to the private dispute over bespoke derivatives between sophisticated businesses.

## Decision

- The court dismissed P&G’s federal and state securities-law claims, holding the swaps were not “securities,” including not “evidence of indebtedness.”
- The court dismissed the Commodity Exchange Act claims, holding the swaps were not regulated futures contracts.
- The court granted summary judgment for BT on breach of fiduciary duty, negligent misrepresentation, and negligence.
- The court dismissed the Ohio Deceptive Trade Practices Act claim as outside the statute’s scope for this type of private, negotiated transaction.
- The court clarified continuing duties and obligations under the swap agreements after the dismissal of the statutory and tort theories.

## Legal Principles

- A swap’s notional amount used only to calculate payment streams does not, without an obligation to repay principal, create an “evidence of indebtedness” for securities-law purposes.
- Treating bilateral payment obligations in customized commercial contracts as “securities” would improperly extend securities regulation beyond its intended domain.
- Customized, privately negotiated over-the-counter swaps are not commodity “futures contracts” where they are not standardized exchange-traded instruments.
- In arm’s-length dealing between sophisticated entities, a derivatives dealer ordinarily does not owe a fiduciary duty absent special circumstances or an explicit undertaking to act primarily for the counterparty’s benefit.
- Negligent misrepresentation and negligence claims in this context require a legally cognizable duty beyond the parties’ contractual relationship; acting as a profit-seeking counterparty generally does not create an advisory “information supplier” duty.
- The Ohio Deceptive Trade Practices Act is directed to unfair competition-type marketplace deception and does not generally reach a private dispute over bespoke financial instruments negotiated between sophisticated firms.

## Conclusion

The court treated the leveraged swaps as contractual risk-allocation devices rather than regulated securities or futures and, given the arm’s-length relationship between sophisticated counterparties, rejected fiduciary and negligence-based attempts to shift trading losses through tort or unfair-trade theories.


Procter & Gamble Co. v. Bankers Tr. Co., 925 F. Supp. 1270 (S.D. Ohio 1996)