The Farmer's Cooperative of Arkansas (Co-Op) was an agricultural cooperative that had approximately 23,000 members. In order to raise money to support its general business operations, the Co-Op sold promissory notes payable on demand by the holder. The notes were uncollateralized and uninsured and paid a variable rate of interest that was adjusted to make it higher than the rate paid by local financial institutions. The notes were offered to members and nonmembers and were marketed as an "investment program." Advertisements for the notes, which appeared in the Co-Op newsletter, read in part: "YOUR CO-OP has more than $11,000,000 in assets to stand behind your investments. The Investment is not Federal [sic] insured but it is . . . Safe."

Despite the assurance, the Co-Op filed for bankruptcy in 1984. At the time of the bankruptcy filing, over 1,600 people held notes worth a total of $10 million.

After the bankruptcy filing, a class of note holders filed suit against Arthur Young & Co., alleging that Young had failed to follow generally accepted accounting principles in its audit, specifically with respect to the valuation of the Co-Op's major asset, a gasohol plant. The note holders claimed that if Young had properly treated the plant in its audited financials, they would not have purchased the notes. The petitioners were awarded $6.1 million in damages by the federal district court. Are the notes securities? [Reves v. Ernst & Young, 494 U.S. 56 (1990)]