The opinion of the court was delivered by: DUFFY
KEVIN THOMAS DUFFY, D.J.:
On April 1, 1981 plaintiff Thomas Vorrius brought a class action suit against defendants Nelson Ghun & Associates, Inc. ("Nelson Ghun"), a registered commodity trading advisor, Hak S. Ghun, the former president of Nelson Ghun, and Robert T. Harvey, the former general sales manager of Nelson Ghun. The complaint is based on Vorrius' alleged $10,000 investment in a participation offered by Nelson Ghun. The first four counts of the complaint allege that the defendants failed to register this participation in violation of section 12(1) of the Securities Act of 1933 ("1933 Act") (Count 1); failed to file a "further state notice" or other filing of the participation in violation of the Martin Act (Count 2); made material misrepresentations and omissions that constituted violations of sections 17(a)(1) and 17(a)(2) of the 1933 Act, section 10(b) of the Securities Exchange Act of 1934 ("1934 Act"), the Martin Act, and amounted to common law fraud (Count 3); and defrauded the plaintiff in violation of section 17(a)(3) of the 1933 Act, section 10(b) of the 1934 Act and the Martin Act (Count 4). The final count, Count 5, alleges that the close of Nelson Ghun's business operations breached its contract with the plaintiff. A default judgment was entered on August 18, 1982 against defendants Nelson Ghun and Hak S. Ghun. This judgment resolved Count 5 of the complaint, which was brought solely against defendant Nelson Ghun. A one day bench trial was held before me on February 10, 1983, to resolve the first four counts of the complaint still pending against the remaining defendant Harvey. The following shall constitute my findings of fact and conclusions of law.
Thomas Vorrius, a 1976 graduate of St. Peters College, worked for a computer accessory company before he joined Nelson Ghun in mid-summer of 1980. Plaintiff was hired as a sales trainee to sell commodity managed accounts. His job essentially was to solicit customers for commodity accounts that Nelson Ghun would manage.Defendant Robert Harvey was Mr. Vorrius' supervisor. Mr. Harvey, a 1969 graduate of Georgia Tech, worked for International Nickel of Canada and in the real estate business before joining Nelson Ghun as a sales trainee in January, 1980. He was promoted to salesmen in mid-February 1980 and in June of 1980 he was further promoted to sales manager and placed in charge of twenty salesmen, including Vorrius. In August of 1980, Hak Ghun announced to the employees of Nelson Ghun that Robert Harvey had made a sizeable investment in the company. On August 15, 1980, Robert Harvey entered into a loan and employment agreement with Nelson Ghun providing that Harvey would lend the company $70,000. Plaintiff's Exhibit 2. Vorrius, after learning of this investment, approached Harvey to discuss the nature of Harvey's loan. After numerous discussions with Harvey in September and early October of 1980, Vorrius assumed $10,000 of Harvey's loan.
Plaintiff's Exhibit 1, dated October 8, 1980, is a receipt signed by Robert Harvey, as Director of Operations of Nelson Ghun, acknowledging the receipt of $10,000 from Vorrius and enumerating the terms of the agreement. This document provides that Vorrius will receive
Fourty [sic] cents per each round turn trade effected on all our existing or future commodity interest accounts each month for a total of one year fromthe date hereof, regardless of when said accounts were opened or contributed to by our client.
In the event that payee has not received a minimum of $10,000 with interest thereon computed at the rate of 24% per annum by November 1, 1981, then the balance of $10,000. with interest as aforesaid less the amount paid shall be due and payable.
Vorrius' purchase of the loan participation in Nelson Ghun coincided with a more general sales pitch by the defendant company. Nelson Ghun, in an attempt to raise money, offered private placements to certain customers. The private placements were available in $5,000 increments and provided for 20 cents per trade and a minimum of a 24 percent return on the investment at the end of the year. The combination of the private placements being offered by Nelson Ghun and the loan agreement between Harvey and Nelson Ghun indicated the company's need to raise money.
On December 15, 1980, Nelson Ghun closed its doors and filed for bankruptcy. Mr. Vorrius never received either a return on h is principal or the principal itself. This lawsuit was commenced on April 1, 1981, to recover $10,000 plus the 24 percent interest owed pursuant to the contract between the parties.
Vorrius, who testified in support of his case, contends that he was unaware of the loan of $10,000 from Harvey and Nelson Ghun documented in plaintiff's Exhibit 2. He argues instead that he believed that he had purchased one of the private placements being offered to Nelson Ghun customers and employees. He further contends that this private placement was a security and that the failure of Nelson Ghun and Harvey to treat the private placement as a security violated a plethora of federal and state securities statutes.
Harvey, who testified in his defense, argues that the loan participation purchased by Vorrius was not a security and alternatively that Harvey was not a "controlling person" of Nelson Ghun ...