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4000 - Advisory Opinions

Insurance Coverage for Enhanced Yield Certificates of Deposit


October 10, 1986

Gerald J. Gervino, Senior Attorney

As requested in our telephone conversation of September 29, 1986, we are responding to letters of your counsel, Mr. *** ***. In our conference of September 23, 1986 with yourself, Mr. *** *** and Mr. Roger Hood, Assistant General Counsel of our office, you supplied us with a copy of an opinion of counsel dated September 19, 1986. The opinion was meant to respond to our objection, raised in our letter of October 25, 1985, that the obligations of your client's, "Enhanced Yield Certificates of Deposit" program might be sold in contravention on the registration provisions of the Securities Act of 1933, 15 U.S.C. § 77a et. seq. (1982).

Mr. ***, in his opinion of counsel, opined that the enhanced yield certificates in the program should not be deemed to be securities. He indicated that it seems clear that the certificates should not be subject to registration under the Securities Act of 1933 and that the bank's guarantees of all principal and interest due on the certificates would fit an exemption under section 3(a)(2) of the Securities Act of 1933. Further he indicates that if the enhanced yield certificates of deposit program could be deemed to be an investment company, it would be exempt under section 3(c)(5)(C) of the Investment Company Act of 1940, 15 U.S.C. § 80a - 3(c)(5)(C) (1982). He does not take a position on whether or not the anti-fraud provisions of the securities laws apply to an offering of the enhanced yield certificates. Mr. *** states that the bank has assured him that it intends to furnish adequate and appropriate disclosure to prospective purchases of the certificates.

We take no position with respect to the opinion of bank counsel in this case. However, we feel that because of our receipt of that opinion, we can state our view as to the insurance coverage afforded certificates of deposit issued under the enhanced yield certificate of deposit program. Based upon the representations and information that you have provided in your counsel's letters of August 2, 1985, July 2, 1986 and September 19, 1986, we have the following opinion. So long as your bank is an insured bank within the meaning of the Federal Deposit Insurance Act 12 U.S.C. § 1811 et. seq. (1982), funds on deposit in the bank would be aggregated with any other funds which the depositor might have on deposit in your bank and insured up to $100,000.

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