dissenting.
I disagree with the majority, not on the law, but on the facts. The issue is what in fact is “credit.” The record below contains no economic or accounting expert testimony indicating what “credit” is; so we are left on our own to define it. In the context of this case “credit” is the loaning of money to a debtor on terms for repayment. The securities are “GNMA forwards” (not to be confused with “GNMA securities”). The “GNMA forwards” were sold to the Abeleses on terms of credit that were not fully disclosed as required by Rule 10(b)(16) of the Securities and Exchange Commission.
The “GNMA forwards” were originally bought by Oppenheimer from investment bankers and then sold to the Abeleses at a marked-up price. The mark-up was high enough not only to include what is thought of as profit but also interest on the unpaid portion of the purchase price. Oppenheimer pretended to pay interest to the Abeles-es on the down payment in order to deceive them, i.e. this was done as a sales technique to lure them into believing that they were earning money on their “investment.” It was a tricky and deceptive way of selling these “GNMA forwards.”
Unbeknownst to the Abeleses, after they bought the “GNMA forwards” Oppenheimer checked their market value at least weekly, and when the market value fell Oppenheimer called for more money. When more money was not forthcoming, it sold out the “GNMA forwards.” Under this arrangement, the Abeleses unknowingly assumed the entire risk of a fall in the market value of the “GNMA forwards,” i.e. if the market value of the “GNMA forwards” went down then they had to come up with more money or lose their investment. The district court assumed that because Oppenheimer did not charge “interest on the amount that they advanced,” that it was not an extension of credit. The fact that Oppenheimer did not set forth the cost of money that was advanced to the Abeleses does not mean that Oppenheimer was not being compensated for the use of their money.
In particular, I would like to comment on the following statements in the majority opinion.
(1) “The district court found that there was no extension of credit and thus, no violation of Rule 10(b)(16), because there was no debt obligation to pay the purchase price due and owing on the trade date.”
On the trade date, January 19, 1981, the debt was owing; on the settlement date, March 19, 1981, it was due but there was also an obligation to pay the purchase price on the happening of other events such as the sale of the “GNMA forwards” which the Abeleses had the right to do before the settlement date or the sale of the “GNMA forwards” by Oppenheimer when their market value went down. The right of Oppenheimer to sell on the declining of the market was not disclosed to the Abeleses.
(2) “There is also a risk, borne by both investor and broker, that the other party will not perform on the settlement date.”
There was no risk borne by Oppenheimer. The risk was entirely borne by the Abeleses, and this risk was that if the market value of the “GNMA forwards” between the trade date and the settlement date went down, then the Abeleses would have to come up with more money or allow Oppenheimer to sell their securities. There was in fact no risk of nonperformance on the part of the Abeleses, because the “GNMA forwards” could be sold by the Abeleses on the “GNMA forwards” market before the settlement date if the market went up, in which case Oppenheimer would be paid in full or Oppenheimer would sell the “GNMA forwards” if the market went down, in which case Oppenheimer would be paid in full, and if neither of these events took place, Oppenheimer would be paid in full on the settlement date. Oppenheimer could not lose.
(3) “The amount of deposit varies depending on the profitability of the invest*127ment during the period between the trade and settlement dates.”
This is incorrect. Undisclosed to the Abeleses, the amount of deposit only varied if the market value of the “GNMA forwards” as of any given date between the trade date and the settlement date went down, in which case Oppenheimer would call for a larger deposit.
(4) “Accordingly, plaintiffs argue that the good faith deposit was security for the debt created.”
This misstates the plaintiffs’ position. The deposit was for the purchase of the “GNMA forwards,” and the “GNMA forwards” were the security for the unpaid portion of the purchase price, i.e., the debt.
(5) “Plaintiffs confuse the concepts of an obligation to pay and a debt which is due and owing.”
This assumes that the debt was not due and owing until the settlement date, and under the arrangement in this case, that was not true. The debt also became due and owing at the time of certain other events; that is the date the Abeleses sold their “GNMA forwards,” if they did, or at the time the market value of the “GNMA forwards” dropped more than the amount of the deposit — and as stated so many times in this dissent, the Abeleses were never told about this latter possibility.
(6) “Moreover, Oppenheimer did not maintain the GNMA certificates for the Abeleses since it is undisputed that the underlying GNMA certificates were not in existence at the time of the purchase.”
This is irrelevant for we are not dealing with “GNMA certificates;” we are dealing with securities that are called “GNMA forwards” which are bought and sold in a very active market which is a separate market from that in which “GNMA certificates” are traded.
(7) “On the trade date, Oppenheimer had not purchased the GNMA certificates, and thus did not transfer title to plaintiffs.”
This is irrelevant because Oppenheimer purchased “GNMA forwards” from investment bankers, and that is what they sold to the Abeleses. No one here is involved in buying or selling “GNMA certificates.” It is comparable to the commodities market when investors trade in futures for soy beans before the soy beans are harvested.
(8) “Next, no extension of credit existed since the plaintiffs had no obligation to pay Oppenheimer the purchase price.”
This is incorrect for the Abeleses did have an obligation to pay Oppenheimer for the “GNMA forwards” that they bought on any one of three dates: (1) the date the Abeleses sold the “GNMA forwards;” (2) unbeknownst to the Abeleses, the date the market value of the “GNMA forwards” dropped below what the broker felt to be a safe amount; and (3) the settlement date.
(9) “Plaintiffs’ deposit is similar to a performance bond designed to insure that the parties live up to their obligations at a future date.”
This is not similar to a performance bond for the Abeleses were not guaranteeing that they would buy the “GNMA forwards.” They had already bought them and they had the right to sell them. The Abeleses’ deposit was a down payment, and they were given credit for the down payment on their purchase price and the broker extended them credit for the unpaid balance.
(10) “Plaintiffs’ deposit was not part of a financing arrangement, and there were no credit charges.”
This is untrue. There were no stated credit charges, but in fact, those charges were hidden in the mark-up. The whole purpose of the Rule 10(b)(16) is to require brokers to state these credit terms.
(11) “Since no debt was due on the trade date, there was no deferral of a debt payment and thus, no extension of credit under the TILA.”
The Abeleses had a debt which was incurred when they purchased the “GNMA forwards” on the trade date. This debt was payable on any one of three dates, i.e., the date the Abeleses sold the “GNMA forwards,” if they did, on the settlement date, or as the Abeleses found out, on the date that Oppenheimer sold them.
*128In conclusion, since Oppenheimer did in fact extend credit to the Abeleses, they violated Rule 10(b)(16) because they did not disclose the credit terms that they were required to do. For the above reasons, I would grant judgment for the Abeleses. I respectfully dissent.