The Supreme Court today reinstated a $6.1 million award against the Arthur Young & Co. accounting firm won by investors in the Farmer's Cooperative of Arkansas and Oklahoma. The justices, by a 5-4 vote, ruled that the promissory notes held by the co-op's investors are ``securities'' as defined by federal law. A federal appeals court had thrown out the award after ruling that the notes were not securities. Sold for many years by the co-op to thousands of farmers, the notes were uninsured, payable on demand and yielded only interest. When the co-op filed for bankruptcy protection in 1984, about 1,600 of its 23,000 members held notes they had purchased for more than $10 million. Among other legal actions, investors filed a ``class action'' lawsuit against Arthur Young & Co., which had audited the co-op's 1981 and 1982 financial statements and issued reports on those statements. The suit alleged that the accounting firm fraudulently had misled investors about the co-op's financial strength, in violation of a federal security law's anti-fraud provisions. A federal jury awarded the investors about $6.1 million in compensatory damages, but the 8th U.S. Circuit Court of Appeals threw out the award when ruling that the notes were not securities. In disagreeing with the 8th Circuit court, Justice Thurgood Marshall noted ``Congress' broader purpose ... of ensuring that investments of all descriptions be regulated to prevent fraud and abuse.'' He was joined by Justices William J. Brennan, Harry A. Blackmun, John Paul Stevens and Anthony M. Kennedy. Chief Justice William H. Rehnquist and Justices Byron R. White, Sandra Day O'Connor and Antonin Scalia dissented. The case is Reves vs. Ernst and Young, 88-1480.
