Plaintiff brought an action against Coty Inc., his former employer, alleging violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, based on Coty’s purported misrepresentations regarding stock options granted to plaintiff under an employee benefit program. Defendants moved to dismiss, arguing that neither the benefit plan itself nor the options granted to plaintiff were “securities” as defined in the Exchange Act.
The District Court began its analysis by noting that an element of plaintiff’s securities law claims required that the alleged fraud occur in connection with the purchase or sale of a security. The Court first ruled that the employee benefit plan was not a “security” because it did not constitute an “investment contract” under the federal securities law. The plan in question was “noncontributory” and, under established precedent, the Court ruled that only voluntary, contributory plans have the characteristics required to be deemed “securities.”
The Court next concluded that the plaintiff’s claim of fraud in connection with the options themselves was also flawed. The Court recognized that the options were “cognizable securities” under the Exchange Act. However, the Court ruled that there was never a purchase or sale of the options and that the alleged fraud did not concern their issuance, but rather their decrease in value based upon an interpretation of the plan document that the plaintiff challenged. Accordingly, and after noting the Second Circuit’s reluctance to transform what are fundamentally breach of contract claims into securities claims, the Court dismissed plaintiff’s federal securities law claim. (Fishoff v.Coty Inc., 2009 WL 1585769 (S.D.N.Y.))