This section contains the nature of the case and procedural background.

The Co-Op is an agricultural cooperative that had approximately 23,000 members. The Co-Op sold promissory notes payable on demand by the holder to finance its general operations. The notes were uncollateralized and uninsured. They paid a variable rate of interest that was adjusted monthly to keep it higher than the rate paid by local financial institutions. The Co-Op marketed the notes as an 'Investment Program.' Advertisements read: 'YOUR CO-OP has more than $11,000,000 in assets to stand behind your investments. The Investment is not Federally insured, but it is . . . Safe . . . Secure . . . and available when you need it.' D audited the Co-Op's financial statements. It declared that the Co-op’s assets were sound enough to issue the notes. The Co-Op filed for bankruptcy in 1984. At the time of the filing, over 1,600 people held notes worth a total of $10 million. Ps sued D claiming that D had intentionally failed to follow generally accepted accounting principles in its audit, specifically with respect to the valuation of one of the Co-Op's major assets, a gasohol plant. Ps sued under the antifraud provisions of the 1934 Act. Ps prevailed at trial on both their federal and state claims, receiving a $6.1 million judgment. D appealed claiming that the demand notes were not 'securities' under either the 1934 Act or Arkansas law, and the statutes' antifraud provisions, therefore, did not apply. The Eighth Circuit reversed. The Supreme Court granted certiorari.

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