that if its above contentions are rejected, it is entitled to a more definite statement than is provided by the plaintiff's pleadings.
1. Rule 10b-5. The Rule prohibits the making of untrue statements or omissions, or employing any scheme to defraud "in connection with the purchase or sale of any security." The defendants first argue that their conduct with respect to margin accounts is not actionable under 10b-5 because it lacks the necessary "connection with the purchase or sale of any security."
At the outset, it must be noted that the margin accounts themselves are not "securities" within the meaning of 10b-5. See Salcer v. Merrill Lynch, 682 F.2d 459 (3d Cir. 1982); Wasnowic v. Chicago Board of Trade, 352 F. Supp. 1066 (M.D. Pa. 1972), aff'd, 491 F.2d 752. Nor are loans of money, which resemble margin accounts, ordinarily treated as securities. See Rispo v. Spring Lake Mews, 485 F. Supp. 462 (E.D. Pa. 1980); Provident Nat'l Bank v. Frankford Trust Co., 468 F. Supp. 448 (E.D. Pa. 1979). Therefore, if defendants are to be held liable under 10b-5, it must be because their operation of margin accounts is "in connection with the purchase or sale of any security." None of the cases the parties have submitted for the court's edification squarely address the question of whether non-disclosure of the interest rates on margin accounts is actionable under 10b-5.
The plaintiff has brought to our attention several cases in which the transfer of stock as security for a loan was treated as a sale of securities. See Alley v. Miramon, 614 F.2d 1372 (5th Cir. 1980); Rubin v. United States, 449 U.S. 424, 66 L. Ed. 2d 633, 101 S. Ct. 698 (1981); United States v. Kendrick, Fed. Sec. L. Rep. (CCH) P 99,004 (9th Cir. 1982). These cases do not appear to be apposite, since the fraud regarding the loans directly induced the transfer. Here, there is nothing in the complaint to suggest that the plaintiff bought or sold securities because of anything the defendants failed to disclose concerning the margin accounts. In the case of Marbury Management, Inc. v. Kohn, 629 F.2d 705 (2d Cir. 1980), the alleged losses were in the purchase of specific stocks concerning which representations were made. Such is not the case here. Nor are the cases of Cramer v. General Telephone & Electronics Corp., 582 F.2d 259 (3d Cir. 1978) or United States v. Read, 658 F.2d 1225 (7th Cir. 1981), on point since both those cases involved fraud in the sale of particular securities, in the Cramer case, the security consisting of an ownership interest in a company. Of greater relevance are the Arrington and Mihara cases, both from the Ninth Circuit. In Arrington v. Merrill Lynch, 651 F.2d 615 (9th Cir. 1981), the defendants misrepresented the risks of purchasing stocks on margin in a declining market and the merits of various securities transacted in. The difference between Arrington and the instant case is narrower than the difference in the earlier cited cases. Nevertheless, there is a difference between misrepresentations concerning the credit terms of margin accounts and misrepresentations concerning the nature of trading on margin in a particular economic climate. The latter misrepresentations strike us as more closely related to the purchase or sale of securities. Mihara v. Dean Witter, 619 F.2d 814 (9th Cir. 1980), involved the practice of "churning," in which a broker, in order to earn commissions, makes more transactions for a client than are necessary or desirable. The case is like the present one in that there are no misrepresentations regarding any particular securities, but misrepresentations regarding a general brokerage practice. But we do not read the case, as plaintiff does, to stand for the broad proposition that "a broker's activities are of necessity connected with the purchase and sale of securities." Finally, the Steinberg v. Shearson case 546 F. Supp. 699 (D. Del. 1982), factually identical to the present one, assumes that margin account credit misinformation is cognizable under 10b-5, but that assumption is not explained. The case is not, therefore, entitled to much weight.
Turning to the defendants' cases, again we find nothing quite on point, although the factual settings are somewhat more comparable to those presented here. Wilson v. First Houston Investment Corp., 566 F.2d 1235 (5th Cir. 1978), was a case in which fraudulent statements were made by a firm about its investment management techniques. Such statements were deemed not sufficiently "in connection with" the purchase or sale of securities as to be covered by 10b-5. This case is somewhat persuasive because margin accounts have more to do with the management of portfolios than they do with the underlying securities themselves. In Drasner v. Thomson McKinnon Securities, 433 F. Supp. 485 (S.D.N.Y. 1977), the court stated:
The only effect of margin was to provide a deposit as security to the broker who was acting as plaintiffs' agent to effect a contract between plaintiffs and third parties . . . . It had no financial connection with plaintiffs' gains or losses which were solely in conjunction with the price movements of the underlying stock.