*312 OPINION AND ORDER
This matter is before the Court on the motion of the' defendant to dismiss and the motion of the defendant to stay the action pending arbitration.
I
On September 16, 1977, the plaintiff, Lawrence Berman, filed a complaint against the defendant, Bache, Halsey, Stuart, Shields, Inc., alleging causes of action based upon the Securities Act of 1933, 15 U.S.C. § 77a et seq., the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., the Commodity Exchange Act of 1936, 7 U.S.C. § 1 et seq., and the common law of the State of Ohio. The complaint alleged that the plaintiff executed a customer margin and lending agreement with the defendant in 1960. The plaintiff’s account was largely unused until he approached the defendant in late 1972 and then began trading in stocks, commodities and metals through the defendant’s since deceased employee, one Ned Grandstaff. The transactions which comprise the subject matter of this complaint took place between January 8, 1973 and August 8, 1974.
The defendant subsequently moved this Court to dismiss all nine counts of the original complaint or to stay the action pending arbitration which was provided for in the margin agreement between the parties. The plaintiff not only filed memoranda in opposition to these motions, but also sought leave to file a second amended complaint purporting to set out in greater factual detail the basis of the allegations of fraud originally pleaded. Leave to file the second amended complaint was granted by this Court in an order dated February 8, 1978.
In addition to the pleadings, both parties have filed affidavits with respect to the motion to dismiss. The defendant has offered the statement of two surviving account representatives who either worked on the plaintiff’s account or observed the relationship between the plaintiff and Mr. Grandstaff. Both affidavits indicate that the plaintiff made numerous and daily visits to the offices of the defendant and approved or was informed of all of the investments made on his behalf; in the opinion of both affiants, the plaintiff was a “sophisticated” investor. The plaintiff’s affidavit denies any investment expertise on his part, and states that, although his visits to the defendant’s office were frequent, Mr. Grandstaff had actual discretion and in-fact control over the plaintiff’s investment decisions.
The plaintiff’s affidavit further describes his late 1972 meeting with Mr. Grandstaff at which time he orally communicated his “investment objectives,” which were
(a) to earn enough to pay the large capital gains;
(b) to take no undue risk which would dissipate my capital;
(c) to take no large loss in any single transaction;
(d) not to invest in any commodities, because there would be less chance of erosion of my capital with stocks;
(e) to have someone to advise me who was an expert and who was familiar with my stated objectives and to do whatever that expert told me to do.
The plaintiff’s affidavit also contains the following statement:
7. Sometime during 1973, and I believe it was April or May, Mr. Grandstaff strongly suggested that I invest in commodities futures contracts. I informed him that I had no interest in that type of investment, because of the high risk of loss of principle [sic].
8. After much discussion, I reluctantly agreed to enter that market. Mr. Grandstaff had told me that he was accustomed to guiding investors in that market and that he would take care of me.
II
In considering the complaint as originally filed and the various memoranda and affidavits, it is apparent that the crux of the plaintiff’s complaint against the defendant *313 is the trading in commodities futures contracts in corn, wheat, soybeans, soybean meal and palladium. In light of the defendant’s argument that such commodities futures contracts are not “securities” within the meaning of the Securities Act of 1933 or the Securities Exchange Act of 1934, the plaintiff’s second amended complaint lists, under “The Facts and Circumstances” a number of transactions in stocks which, it is stated, are also “complained of.”
The addition of these transactions in what are concededly securities evidently has a two-fold purpose. The first is to establish the jurisdiction of this Court directly under the 1933 and 1934 Acts with respect to the alleged fraud of the defendants in these transactions involving securities. The second is to establish the jurisdiction of this Court under the 1933 and 1934 Acts with respect to the allegedly fraudulent commodities futures transactions by alleging a general scheme to defraud the plaintiff through the trading of both securities and commodities.
See Hecht v. Harris, Upham & Co.,
Count One
Count 1 deals solely with the actions of the defendant “in connection with the sales and purchases by plaintiff of securities traded over national stock exchanges.” Complaint, ¶ 9. This count, then, relates only to transactions in securities admittedly covered by the 1933 and 1934 Acts. The factual basis for the alleged fraud in these transactions is set out in paragraph 10(a). After stating that plaintiff had little investment expertise and that the defendant did have such expertise, the complaint alleges that
[djefendant, however, knew that its guidance did not fit within the parameters [sic] of Plaintiff’s stated investment objectives, and Defendant was aware that Plaintiff was relying on the guidance supplied by Defendant. Defendant intentionally, or with such recklessness as to indicate an intention, guided Plaintiff to follow a course of action which was, in fact, inconsistent with that desired by Plaintiff.
Defendant objects to Count 1 on the basis that plaintiff has not alleged fraud with the specificity required by Rule 9(b), Federal Rules of Civil Procedure. This Court agrees.
Rule 9(b) provides that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.” Three reasons are usually assigned as the chief concerns underlying this rule. The first is to deter the filing of complaints in order to discover unknown wrongs; the second is to protect potential defendants from reputational damage due to the serious nature of a charge of fraud; the third is to provide the defendants with concrete notice of the particular conduct for which a defense must be prepared.
Gross v. Diversified Mortgage Investors,
Nowhere in Count 1 is it alleged that the defendant made any material misrepresentation, either affirmatively or by omission, which misled the plaintiff to his detriment. If these elements of securities fraud are intended to be gleaned from the allegation that the defendant did not follow the investment objectives of the plaintiff, the complaint does not state what those objectives were or in what way the defendant violated them. Nor does Count 1 specify which of the securities transactions which are generally said to be “complained of” earlier in the complaint did not comport with the plaintiff’s investment objectives. Were the Court to read the affidavit submitted by the plaintiff with the memorandum contra the motion to dismiss as a part of the complaint, the plaintiff would not be
*314
benefitted. The investment objectives listed in the affidavit make it difficult to imagine how those objectives could have been violated by the transactions described in Count 1. The Court need not speculate as to what constituted this fraud, nor attempt to imagine a set of facts by which the plaintiff could prevail. The standard here is Rule 9(b), not
Conley
v.
Gibson,
In sum, this complaint falls far short of the specificity required in such cases as
Segal v. Gordon,
Judge Knapp’s opinion in the Carroll case also makes the following observation with respect to an allegation of “churning:” 1
Moreover, ... a conclusory allegation of churning — without a factual support — cannot save this complaint. At most, the allegations in plaintiff’s complaint demonstrate that defendants turned over the bulk of her account once in a 15 month period by selling 22 of 24 holdings and reinvesting the proceeds in nine other securities, earning as commissions a total of $9,000 — or a sum equal to 1% of the portfolio value. This hardly constitutes illegal churning cognizable under 10b — 5, as defined by the courts and commentators. Fey v. Walston & Co., Inc. (4th Cir. 1974)493 F.2d 1036 (account turned over 13 times in 26 months); Hecht v. Harris, Upham & Co. (9th Cir. 1970)430 F.2d 1202 (10,000 trades with a gross dollar volume of $100 million consummated for an account worth $533,000, the broker realizing $189,000 in commissions); Moscarelli v. Stamm (S.D.N.Y. 1968)288 F.Supp. 453 (account turned over 12 times each month for 4 months; one particular security was purchased 15 times and sold 12); . . . Churning has also been defined as . transactions in his customer’s account “which are excessive in size and frequency in light of the character of the account.” . Certainly the single turn-over of plaintiff’s account over a 15 month period and the earning of brokerage commissions equal to 1% in value of the account cannot be termed excessive or be classified as churning, as above defined. See Marcus v. Putnam (D.Mass.1973)60 F.R.D. 441 , 446.
Because the plaintiff has been given ample opportunity to amend the complaint and still has failed to allege any underlying fact as to the size or frequency of the transactions which would support a claim of churning, 2 the Court can only conclude that the evils sought to be avoided by Rule 9(b) are present in the instant case. Thus, the claim made in paragraph 10(b), as with the remainder of Count 1, must be dismissed for failure to comply with Rule 9(b), F.R.C.P. Plaintiff has failed to plead facts sufficient to show that defendant engaged in any fraud “in connection with the sales and purchases by Plaintiff of securities traded over national stock exchanges . .
Count Two
The plaintiff’s claims in Count 2 of the second amended complaint allege fraud in transactions for commodities futures contracts which were undertaken by the defendant on the plaintiff’s behalf. 3 The fraud alleged in this count is again based upon the plaintiff’s investment “objectives.” Paragraph 12(c) states that
Defendant intentionally, or with such recklessness as to indicate an intention, guided Plaintiff to follow a course of action which should not have been entered into by an investor without adequate capital to survive substantial losses, which subjected Plaintiff to financial risks which had not been fully and totally explained to Plaintiff.
Complaint, ¶ 12(c). Paragraph 12(d) then alleges, in language almost identical to that of paragraph 10(b) in Count 1, that the defendant was guilty of churning the plaintiff’s account with regard to commodities futures contracts.
The defendant again objects to this count on the basis of Rule 9(b), F.R.C.P., due to the failure to identify particular transactions by date or amount, to specify the way in which “objectives” were violated, and to indicate the size and frequency of transactions made for the purpose of churning. Defendant has also argued that Count 2 fails to state a claim under the Securities Act of 1933 and the Securities Exchange Act of 1934 because commodities futures contracts are not “securities” within the meaning of those Acts. The Court must therefore initially determine whether fraud in the trading of the commodities futures contracts involved in this litigation states a claim under the federal securities laws cognizable in the district court.
A
Initially, it seems odd to question the applicability of the liberally construed federal securities laws to commodities futures contracts which are bought and sold on national exchanges, often by the same brokers who deal in corporate stock and other securities. An understanding of the
*316
true nature of a commodities futures contract, however, demonstrates why virtually all courts agree that the simple commodities futures contract is not a “security.”
4
E. g. SEC v. Continental Commodities Corporation,
the purchaser agrees to take delivery, or the seller agrees to make delivery, of a specified quantity of a specified commodity at a specified future time at a specified price. . . . [the purchaser] is in no way investing his money in a common enterprise, nor is he led to expect profits solely from the efforts of any third party. The “enterprise” is an individual one. The expectation of profit arises solely from the speculative hope that the market price of the underlying commodity will vary in his favor, permitting purchase or sale at a profit.
McCurnin v. Kohlmeyer & Co.,
The plaintiff argues that even if a commodities futures contract itself is not a security, the margin account, that is, the agreement by which the defendant would purchase such futures contracts on the plaintiff’s behalf, was nonetheless a security. Again, research discloses general agreement that a nondiscretionary trading account used to purchase commodities futures contracts is not a security.
E. g., Consolo v. Hornblower & Weeks-Hemphill, Noyes, Inc.,
In the landmark decision of
SEC v. W. J. Howey Co.,
the basic test for distinguishing the transaction from other commercial dealings is
“whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others.” Howey,328 U.S. at 301 [66 S.Ct., at 1104 ].
This test, in shorthand form, embodies the essential attributes that run through all of the Court’s decisions defining a *317 security. The touchstone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.
United Housing Foundation, Inc. v. Forman,
In light of this definition, the Seventh Circuit concluded that a discretionary account for trading in commodities futures was not a security, because the element of a common enterprise was lacking.
Milnarik v. M
— S
Commodities, Inc., supra,
It does not appear that the plaintiff in
Milnarik
made the argument that this “unitary” relationship between the investor-principal and the broker-agent could nonetheless constitute the “common enterprise” of the
Howey
test. Indeed, the opinion in
Milnarik
makes the implication that the common enterprise required must be common among a number of investors dealing with the same promoter or promoters. This relationship has been termed a “horizontal” common enterprise.
6
The Ninth Circuit Court of Appeals has held that the common enterprise required by
Howey
is “vertical (between the investor and promoter) rather than horizontal (among multiple investors).”
Hector v. Wiens,
The Fifth Circuit Court of Appeals declined to follow the lead of the
Milnarik
court, and held that a discretionary account for the trading of commodities futures does meet the
Howey
definition of a security.
SEC v. Continental Commodities Corp.,
“[A] common enterprise is one in which the fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties.”
In SEC v. Continental Commodities Corp., supra, the Fifth Circuit rejected the rule of Milnarik because it found that rule inconsistent with the above quoted definition of a common enterprise. In finding that the discretionary trading account was a security, however, the opinion in Continental Commodities seemed to focus upon the horizontal relationship between investors, even though it had quoted definitions of common enterprise which indicated that the vertical promoter-investor relationship was crucial:
[T]he critical inquiry is confined to whether the fortuity of the investments collectively is essentially dependent upon promoter expertise. . . . [IJnvestors inexorably rely on Continental Commodities’ guidance for the success of their investment. This guidance, like the efficacy of Koscot meetings and guidelines on recruiting prospects and consummating a sale, is uniformly extended to all its investors. That it may bear more productive fruits in the case of some options than it does in the case of others should not vitiate the essential fact that the success of the trading enterprise as a whole and customer investments individually is contingent upon the sagacious investment counseling of Continental Commodities.
If the common enterprise found in
Continental Commodities
was based upon the horizontal relationship between the discretionary account customers of the same broker, then the reasoning of the Fifth Circuit is adequately refuted by the opinion of then Judge Stevens in
Milnarik.
Nor does the rule of
Milnarik
in this regard undermine the validity of the finding of a security in
SEC v. Koscot Interplanetary, Inc., supra.
It is true that in
Koscot
the return to each investor was determined somewhat independently of the others because the return was based in part on the individual investor’s efforts; it is crucial, however, that every Koscot investor was impacted upon in the same manner, that is either beneficially or detrimentally, by the success or failure of the underlying
Koscot
scheme.
8
It can
*319
not be said, however, that the success or failure of the broker’s efforts in managing unrelated discretionary trading accounts will have the same impact upon every investor in the “enterprise.” Since the common enterprise, viewed horizontally, must be the management of all discretionary trading accounts, the defendant could be ninety-nine percent successful in its advice to commodities futures investors, and yet any given investor could have lost everything. The inability of a given investor necessarily to benefit from the general success of this “enterprise” precludes a finding by this Court that the numerous customers of the defendant were involved in a “common enterprise” for purposes of the
Howey
test.
See Hirk
v.
Agri-Research Council, Inc.,
If, however, the Fifth Circuit’s finding of a common enterprise in Continental Commodities was based upon the “unitary” relationship between the plaintiff and defendant, a different question is posed. This would be a truly “vertical” common enterprise, in which the second requirement of the Howey test is found in the relationship between promoter and investor. If such a vertical common enterprise may be found, then the fact that the Milnarik court stressed the “unitary” and “principal-agent” nature of the transaction is an inadequate response to the Fifth Circuit’s analysis, for that court was simply holding that such a unitary relationship may still be a common enterprise for purposes of defining a security. This Court nonetheless declines to accept this reading of Continental Commodities, essentially for two reasons.
Foremost is the fact that a finding of a common enterprise based solely upon the fact of entrustment by a single principal of money to an agent effectively excises the common enterprise requirement of Howey. The test would simply require (1) the investment of capital (2) with the expectation of profit through the efforts of others, for nothing more is involved in a single discretionary trading account. Although the precise meaning of the phrase “common enterprise” is far from clear, nowhere in Howey or later Supreme Court decisions is it intimated that that phrase is somehow redundant of other elements of the definition of a security.
Secondly, the Court is further bolstered in its reluctance to define a security as broadly as the plaintiff urges in this context by the existence and applicability of a distinct regulatory scheme created by Congress in the Commodity Exchange Act of 1936, 7 U.S.C. § 1
et seq.
The existence of parallel legislative schemes does not narrow the definition of a security,
9
but it does significantly undermine arguments that a security exists which are based ultimately on little more than Congress’ “broad remedial purposes” in enacting the securities laws. In an analogous case, the Supreme Court recently dealt with the impact of ERISA on the issue of whether a noncontributory, compulsory pension plan is a security under
Howey.
In
International Brotherhood of Teamsters v. Daniel,
- U.S. -,
In sum, this Court is impelled to reject the holding of Continental Commodities and to accept that of Milnarik. There can be no “vertical” common enterprise based solely on the relationship between promoter and investor which is consistent with Howey. 10 *320 There can be no “horizontal” common enterprise between discretionary account customers without some relationship which ties the fortunes of each investor, at least to some degree, to the success of the overall venture. 11 The Court is of the opinion that the “economic realities” of this relationship militate against the finding of a security, and that the remedial purposes of Congress are well served by the applicability of the Commodity Exchange Act of 1936 to the conduct alleged in the instant complaint.
B
The failure of the plaintiff to establish the jurisdiction of this Court under the securities laws does not mean that there is no other arguable basis for such jurisdiction. As indicated above, the Commodity Exchange Act of 1936, 7 U.S.C. § 1 et seq. would appear to apply to any fraud in the transactions between these parties. Specifically, Section 4b of the Act, 7 U.S.C. § 6b makes it unlawful “to cheat or defraud or attempt to cheat or defraud” any person such as the plaintiff in connection with the sale of commodities futures contracts. 12 The defendant does not dispute that the Commodity Exchange Act does create such a right. It is necessary to determine, however, whether infringement of that right may be remedied in the first instance by a private suit brought in this court.
Whether 7 U.S.C. § 6b creates an implied private cause of action is another question which has been resolved differently by federal courts. In this very circuit, one district
court has held that no such private cause of action exists,
Consolo v. Hornblower & Weeks-Hemphill, Noyes, Inc.,
In general, the cases which have found an implied right of action under § 4b have relied on cases decided in the Seventh Circuit, especially
Goodman v. H. Hentz & Co.,
(1) the intent of the enactment is exclusively or in part to protect the interest of the [plaintiff] as an individual; and
(2) the interest invaded is one which the enactment is intended to protect.
Goodman, supra,
The Supreme Court in
Piper v. Chris-Craft Industries, supra,
refused to allow a private cause of action on behalf of a disappointed tender offeror under § 14(e) of the Williams Act of 1968, 15 U.S.C. § 78n(e). In the course of its analysis, the Court considered not only the statute itself, but also four factors deemed relevant “in determining whether a private remedy is implicit in a statute not expressly providing one.”
First, is the plaintiff “one of the class for whose especial benefit the statute was enacted,” . . . —that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? . . . Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? . . . And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law?
Cort v. Ash,
In considering the express provisions of the statute, it should be noted that the Commodity Exchange Act of 1936 was extensively amended by the Commodity Futures Trading Commission Act of 1974, 88 Stat. 1389 (1974). Most importantly, these amendments created the CFTC as the federal agency designated to administer and enforce the Act. Further, though less extensive, amendments were made in 1978.
13
Section 4b of the Act, 7 U.S.C. § 6b, of course, is silent as to how it is to be enforced, or whether a private party may bring a direct suit for its violation. Such was the case in
J. I. Case Co. v. Borak,
The Commodity Exchange Act has similar provisions creating jurisdiction in the district court. 7 U.S.C. § 13a provides that the Attorney General may bring an action in the district court to collect unpaid penalties assessed by the Commission. 7 U.S.C. § 13a-l provides that the district court shall have jurisdiction of suits brought by the Commission or the Attorney General to restrain or enjoin violations of the Act. Newly added 7 U.S.C. § 13a-2, which became effective on October 1, 1978, provides that the attorney general or other designated officer of any state may bring a suit in equity or in law to enforce any liability created by the Act or to enjoin violations of the Act. Clearly, the grant of jurisdiction in these sections is made only with respect to specific plaintiffs, none of whom are private parties injured by a violation of 7 U.S.C. § 6b. , No section grants general jurisdiction over “all suits at law or equity” brought to enforce the Act. Based upon the statute only, then, the Commodity Exchange Act provides a less convincing case than did Borak for the implication of a private right of action. The Court will now *322 turn to the four factors listed in Cort v. Ash, supra.
First, there is little question that the plaintiff is a member of the class for whose “especial” benefit the statute was enacted. Indeed, 7 U.S.C. § 6b is so concerned with the protection of the purchaser of commodities futures contracts that it creates liability for fraud only on the part of members of a contract market or one who makes a sale on behalf of any other person (i. e., a purchaser). There is no provision proscribing fraud on the part of the purchaser in 7 U.S.C. § 6b. It is also felt that the 1974 amendments were largely motivated by a desire to protect the less sophisticated general investor who was becoming increasingly involved in the trading of commodities futures. See Schief & Markham, The Nation’s “Commodity Cops” — Efforts by the Commission to Enforce the Commodity Exchange Act, 34 Business Law 19 (Nov. 1978) and the legislative history cited therein. The Court is therefore of the opinion that the first factor of the analysis described in Piper v. Chris-Craft, supra, favors the implication of a private cause of action.
The second factor, whether there is any explicit or implicit indication of legislative intent to grant or deny a private cause of action, does not so favor the plaintiff. It is arguable that the description of private administrative remedies, such as the reparations procedure of 7 U.S.C. § 18(e), see S.Rep.No.93-1131, 93rd Cong. 2d Sess. § 106 (1974) reprinted in 1974 U.S.Code Cong. & Admin.News, pp. 5843, 5868-70, without recognition of a direct cause of action implies that no such direct action exists. There is no need to resort to so attenuated an implication, however, because the 1978 legislative history sets out what purports to be a list of private remedies under the Commodity Exchange Act. A direct cause of action is conspicuously absent:
The Commodity Exchange Act provides many customer protections and remedies. The Act directs the Commission to promulgate and administer a regulatory program that includes registration of commodity professionals, segregation of customers’ funds by futures commission merchants, establishment of dual trading guidelines, creation of a procedure for the adjudication of reparation claims, monitoring exchange arbitration procedures, and disciplinary actions, and licensing of industry self-regulatory futures associations. Moreover, customers are afforded protection through the Commission’s power to sue for injunctive relief and to invoke a full range of administrative remedies where appropriate to curb unlawful behavior.
The Commodity Futures Trading Commission was created in order to assure that a single expert agency would have the responsibility for developing a coherent regulatory program encompassing futures trading and related activities. Therefore, Congress has vested in the Commission exclusive jurisdiction to build upon the foundation provided by the Commodity Exchange Act in erecting a sound and strong Federal regulatory policy governing futures trading.
S.Rep.No.95-850, 95th Cong. 2d Sess. 12-13 (1978) reprinted in 1978 U.S.Code Cong. & Admin.News, pp. 3817, 3830-31. The above quoted passage unquestionably implies to this Court that there is no private cause of action for violations of the Act in the first instance, and that interpretation and application of the Commodity Exchange Act at the fact-finding level is intended to be left to the CFTC.
The third factor of the
Cort
analysis is whether implication of the private remedy sought is “consistent with the underlying purposes of the legislative scheme.”
Cort v. Ash, supra,
The fourth and final factor to be considered, whether the cause of action is one traditionally relegated to state law, has little relevance to a case such as this in which there are alternative
federal
remedies. The Supreme Court’s treatment of this factor in
Cort v. Ash, supra,
The Court therefore determines that jurisdiction under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Commodity Exchange Act of 1936 has not been established in Count II. This count must therefore be dismissed.
The Remaining Counts
The other eight counts of the second amended complaint must fall with the first two. No basis of federal jurisdiction is alleged other than the three statutes already mentioned. All claims premised upon the pendent jurisdiction of the court must be dismissed if there are no underlying federal causes of action.
The only counts which add new factual matter are Counts Five and Six. Count Five alleges fraud in the purchase of a certain palladium commodities contract. For the reasons stated with regard to Count Two, this count must also be dismissed. The same is true of Count Six which alleges a material omission with regard to a commodities contract for soybeans. Remedies for these transactions must be sought before the CFTC or in state court.
The Motion to Stay
The Court notes that the prohibition of arbitration clauses in securities cases, see
Wilko v. Swan,
WHEREUPON, the Court determines that the motion to dismiss is meritorious and therefore GRANTED. The motion to stay pending arbitration is therefore rendered moot. The second amended complaint is hereby DISMISSED without prejudice to any rights the plaintiff has to pursue these claims in state court or before the Commodity Futures Trading Commission.
Notes
. The SEC has defined churning in the regulations under 15 U.S.C. § 78o:
The term “manipulative, deceptive, or other fraudulent device or contrivance,” as used in section 15(c) of the Act, is hereby defined to include any act of any broker, dealer or municipal securities dealer designed to effect with or for any customer’s account in respect to which such broker, dealer or municipal securities dealer or his agent or employee is vested with any discretionary power any transactions of purchase or sale which are excessive in size or frequency in view of the financial resources and character of such account.
17 C.F.R. § 240.15c l-7(a). See Note, Churning by Securities Dealers, 80 Harv.L.Rev. 869 (1967).
. The Court recognizes that in some cases involving discretionary trading accounts, the facts necessary to allege a churning violation would be peculiarly in the possession of the defendant and it would be necessary to relax somewhat the requirement of Rule 9(b). No such special situation is urged in this case. Even if it were, however, relaxation would not mean eradication; plaintiff would have to provide some fact to indicate that the size or frequency of the transactions were excessive. Even that was not done in this case.
. Count 2 incorporates by reference all of the preceding paragraphs of the complaint, including those of Count 1. The plaintiff argues that there was a general scheme engaged in by the defendant in which trading in securities and commodities futures were inextricably intertwined. The Court has already determined, however, that the complaint fails to allege any fraud with regard to the trading of stocks in Count 1. The simple incorporation of Count 1 adds no fact which would indicate in what way these two types of transactions were intertwined. Thus the plaintiffs attempt to plead a combined commodities/securities scheme which, if fraudulent, would be cognizable under the 1933 and 1934 Acts,
see Hecht v. Harris, Upham & Co.,
. The term “security” is defined in § 2(1) of the Securities Act of 1933, 15 U.S.C. § 77b(l), and § 3(a)(10) of the Securities Exchange Act of 1934, 15 U.S.C. § 78c(a)(10). For purposes of this discussion, the term is defined in both statutes to include an “investment contract.”
. As to the requirement that profit be derived “solely from the efforts of others,” both the Ninth and Fifth Circuit Courts of Appeal have indicated that the word “solely” should not be read literally so as to preclude a finding of a security where the putative investor supplies some, though relatively unimportant, effort.
See SEC v. Glen Turner Enterprises,
.
See SEC v. Commodity Options International, Inc.,
. As this quotation indicates, the Continental Commodities court did not base its departure from Milnarik upon the fact that the discretionary account in Continental Commodities was for the trading of options for commodities futures contracts, whereas the Milnarik account was simply for trading commodities futures contracts. The Court agrees that this factual distinction has no bearing on the existence of a common enterprise in these cases.
. The
Koscot
court itself seems plainly to have noted this factor, in stating that the “critical factor is not the similitude or coincidence of investor input, but rather the uniformity of impact of the promoter’s efforts.”
SEC v. Koscot Interplanetary, Inc.,
. For example, a discretionary trading account for commodities futures contracts in which investors’ funds were pooled would probably be regulable under both the securities laws and the Commodities Exchange Act. See Hirk v. Agri-Research Council, Inc., supra.
. Cf.
SEC v. Commodity Options International, Inc.,
The Court recognizes that there are problems in adopting the Milnarik approach. The chief drawback is the appearance of making the number of investors determinative of the issue, *320 when a single discretionary account customer may be in need of precisely the same anti-fraud protection as two such customers whose funds are pooled. Indeed, there is no doubt that the single investor in this context subjects his capital contribution to significant risk, a factor which is deemed by many to be the crucial (though not sole) concern in defining a security. See generally Coffey, The Economic Realities of a ‘‘Security": Is There a More Meaningful Formula?, 18 W.Res.L.Rev. 367 (1967). It has been argued, however, that the potentiality of fraud is reduced in a single investor transaction. Id.
In any event, the Supreme Court has yet to hint that it is willing to drop the common enterprise requirement in favor of a more expansive “risk capital” approach which would transform
Howey
into a two-part rather than a three-part test.
See International Brotherhood of Teamsters
v. Daniel,-U.S.-,
.
See Wasnowic v. Chicago Bd. of Trade,
. In addition to the statutory prohibition, see Rule 32.9 of the Commodity Futures Trading Commission (CFTC), 17 C.F.R. § 32.9.
. This complaint was filed on September 16, 1977. There can be no doubt, however, that even the 1978 amendments, insofár as they affect the remedial procedures available to the plaintiff, apply with full force in this case. Cort v.
Ash,