Full opinion text
OPINION AND ORDER KINNEARY, District Judge. This matter comes before the Court to consider the motion of the defendant, TransOhio Savings Bank (“TransOhio”), for dismissal for failure to state claims upon which relief can be granted, Fed.R. Civ.P. 12(b)(6). The plaintiff, Developer’s Mortgage Co. (“DMC”), alleges that the defendant violated sections 12(2) and 17(a) of the Securities Act of 1933, Rule 10b-5 under the Securities Exchange Act of 1934, and the Racketeer Influenced and Corrupt Organizations Act (“RICO”). In addition, the plaintiff set out a number of state law claims. These violations allegedly occurred when the defendant’s predecessor sold the plaintiff a participation in a loan that it had made to Jack and Geraldine Sowles (“Sowles”) for the purpose of purchasing land in Houston and of constructing twenty buildings on the land pursuant to a project known as Harlequin Square (“the Project”). That is, DMC paid the defendant a percentage of the value of the loan in exchange for the right to receive a portion of the payments from Sowles in proportion to the percentage DMC paid. The defendant’s predecessor, Dollar Savings Bank, merged with TransOhio at a time after it had signed the Loan Participation Sale and Trust Agreement (“Sale and Trust Agreement”) with the plaintiff. The Sale and Trust Agreement simply provides for the sale of “participating ownership interests” in loans to be named in attached “Participation Certificates.” In the DMC-TransOhio Sale and Trust Agreement, the parties incorporated only one Participation Certificate, the one which pertained to the Sowles loan. Through the Sale and Trust Agreement and the Participation Certificate, then, TransOhio transferred to DMC a participation in the Sowles loan. The plaintiff now disputes the particulars of the procedures to be followed pursuant to the parties’ agreement in the event Sowles defaulted. According to the Complaint, the defendant represented during negotiations that it had arranged for a Stand-By Permanent Take Out Loan (“Take-Out Loan”) for Sowles. The TakeOut Loan would permit Sowles to pay the plaintiff any of the remaining balance due to it if Sowles could not “market the project.” See Complaint at 2-4. The plaintiff claims that the Take-Out Loan did not adequately protect its interests and that the defendant had no intention to invoke the Take-Out Loan’s protection on behalf of the plaintiff. It lists a number of misrepresentations in connection with the deal and with the Take-Out Loan. After the Project turned sour and the defendant refused to liquidate, the plaintiff filed this suit. The defendant now moves for dismissal for three reasons. First, the defendant claims that the plaintiff’s participating ownership interest in the loan was not a “security” within the meaning of the Securities Act of 1933 (“the ’33 Act”) and the Securities Exchange Act of 1934 (“the ’34 Act”). Therefore, it contends that Counts II and III fail to state a claim upon which relief can be granted under sections 12(2) and 17(a) of the ’33 Act and Rule 10b-5 under the ’34 Act. Second, the defendant argues that Counts XIII and XIV fail to state a claim under RICO since the plaintiff failed to allege a “pattern of racketeering activity,” a requirement under RICO. Finally, the defendant asserts that the Court should dismiss the remaining Counts, since they are based solely on state law. With no independent basis for federal jurisdiction, the defendant urges the Court to refrain from invoking pendent jurisdiction. In its reply brief, the plaintiff claims that the Sale and Trust Agreement and the Participation Certificate representing DMC’s participation ownership interest in the Sowles loan were indeed “securities” which were involved in this transaction. It did not mention the participation ownership interest itself, although the Complaint mentions only the participation as the alleged “security.” The Court will consider the possibility of whether any of these three items were “securities.” Moreover, the plaintiff contends that it does allege a “pattern of racketeering activity” by setting forth claims of multiple criminal episodes of fraud; TransOhio allegedly defrauded Hollywood Federal Savings and Loan Association as well as DMC. Finally, the plaintiff urges the Court to invoke pendent jurisdiction, since it posits that it successfully alleges claims under the securities laws and RICO, independent bases for federal jurisdiction. The Court will address each of the issues raised by the defendant in turn: (1) whether Complaint successfully alleges that the transaction involved a “security” within the meaning of the securities laws; (2) whether the Complaint alleges a pattern of racketeering activity to satisfy RICO; and (3) whether the Court should exercise pendent jurisdiction over the plaintiffs state claims. I. DEFINING A “SECURITY” In order to prove a violation of the securities laws, the plaintiff must show that a “security” was involved; and in order to ascertain whether the transaction involved a “security,” the Court must turn first to the language of the relevant statutes, International Bhd. of Teamsters v. Daniel, 439 U.S. 551, 558, 99 S.Ct. 790, 795, 58 L.Ed.2d 808 (1979). Under section 2(1) of the ’33 Act, the definition of a security is quite broad. 15 U.S.C. § 77b(l) (1982). The statute states that the definition of “security” encompasses “any note ... or any ... participation in” a note. Id. The broad definition of “security” in section 3(a)(10) of the '34 Act contains the same language. 15 U.S.C. § 78c(a)(10) (1982). In fact, the definitions of “security” in the two acts are “virtually identical,” Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 553, 19 L.Ed.2d 564 (1967); and the Court will read both statutes to define “security” in the same way, see, e.g., Landreth Timber Co. v. Landreth, 471 U.S. 681, 686 n. 1, 105 S.Ct. 2297, 2301 n. 1, 85 L.Ed.2d 692 (1985). A. Analysis of the Statutory Language In order to support the claim that the Sale and Trust Agreement and the Participation Certificate are “securities,” the plaintiff relies on the statutory language. Since the statutes include “any note ... or any ... participation in” a note, the plaintiff argues that the two documents are, “ipso facto,” “securities.” For support, the plaintiff reads Landreth Timber Co. v. Landreth, 471 U.S. 681, 105 S.Ct. 2297, 85 L.Ed.2d 692 (1985), to hold that if the name of the instrument is contained in the statutes’ list of kinds of securities, then the instrument must be a “security.” This argument fails for two reasons. First, the language “any note ... or any ... participation” encompasses only the participation itself, not the documents which transfer the participating ownership interest from a purchaser to a seller: in this case, the Sale and Trust Agreement and the Participation Certificate. Therefore, this language does not, by itself, bring these two instruments within the definition of a “security.” Second, the plaintiff misread Landreth. The Landreth Court noted that the fact that the instruments in question might bear a label included in the statutory list does not make them “securities” per se. See id. at 686, 105 S.Ct. at 2301. Instead, this Court must determine whether the instruments in question “possess ‘some of the significant characteristics typically associated with’ ” those instruments of the same name which are, in fact, “securities.” Id. After all, the parties to a transaction could name an instrument anything, such as “stock” or some other label traditionally associated with securities, whether or not such a label corresponds with the true characteristics of the instrument. See United Housing Found., Inc. v. Forman, 421 U.S. 837, 95 S.Ct. 2051, 44 L.Ed.2d 621 (1975). Accordingly, the name which the parties bestow upon an obligation is not dispositive of its possible status as a “security.” Moreover, both the '33 and ’34 Acts provide that the definitions are to apply only if the context does not otherwise require a different definition, 15 U.S.C. §§ 77b(1), 78c(a)(10) (1982). Union Planters Nat’l Bank v. Commercial Credit Business Loans, Inc., 651 F.2d 1174, 1180 (6th Cir.), cert. denied, 454 U.S. 1124, 102 S.Ct. 972, 71 L.Ed.2d 111 (1981). The Court must read the definitions of “security” in light of the purpose of the legislation and the context. Id.; see Landreth, 471 U.S. at 687, 105 S.Ct. at 2302; American Bank & Trust Co. v. Wallace, 702 F.2d 93, 94 (6th Cir.1983). In sum, then, the Court cannot conclude that the loan participating ownership interest in the Sowles loan was a “security,” solely by virtue of the language in the statutes referring to participations in notes. Nor is it possible to include as “securities” the documents which transfer the participations on the same basis. The label given to the instrument is simply not dispositive of its status as a “security.” B. Case Law Tests for the Presence of “Securities” Having rejected the notion that the title given to the instruments involved controls the determination of whether an obligation is a “security,” the Court must conclude that the plain language of the statutes is insufficient to reveal whether or not the instruments and obligation involved were “securities.” With scant legislative history on point for guidance, the Court must turn to judicial interpretations of the statutes. Certain tests propounded in the case law provide useful approaches to resolving the issue. Two tests have arisen as means for determining whether an instrument is a “security.” First, some cases hold that it is necessary to look to the “economic realities” of the transaction, rather than its form, when considering whether the instrument in question is an “investment contract.” United Housing Found., Inc. v. Forman, 421 U.S. 837, 848, 95 S.Ct. 2051, 44 L.Ed.2d 621 (1975); Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 553, 19 L.Ed.2d 564 (1967); see also SEC v. W.J. Howey Co., 328 U.S. 293, 298-301, 66 S.Ct. 1100, 1102-04, 90 L.Ed. 1244 (1946). In looking at “economic realities,” the Supreme Court established the so-called Howey-Forman test. To establish the existence of an investment contract, the Howey-Forman test requires a showing of “[1] the presence of an investment [2] in a common venture [3] premised on a reasonable expectation of profits [4] to be derived from the entrepreneurial or managerial efforts of others.” Forman, 421 U.S. at 852, 95 S.Ct. at 2060. These four conditions are, together, both sufficient and necessary conditions of an “investment contract” or an “instrument commonly known as a ‘security.’ ” Although the Sixth Circuit adopted the Howey-Forman test to determine whether any instrument is a security, Union Planters, 651 F.2d at 1181, the Supreme Court subsequently repudiated this broad application of the test. It held that the Howey-Forman test applied only when determining whether a particular instrument is an “investment contract” or an “instrument commonly known as a ‘security.’ ” Landreth, 471 U.S. at 691-92 & n. 5, 105 S.Ct. at 2304-05 & n. 5. The second, subsequent test for the presence of a “security” appeared in Landreth Timber Co. v. Landreth, 471 U.S. 681, 105 S.Ct. 2297, 85 L.Ed.2d 692 (1985). Although not stated in these terms, Landreth sets down two conditions, which together are sufficient, but not necessary, for an instrument to be a “security”: (1) the instrument bears a title which is traditionally associated with “securities”; and (2) the instrument “possesses ‘some of the significant characteristics typically associated with’ ” instruments of that title which are, in fact, “securities,” Landreth, 471 U.S. at 686, 105 S.Ct. at 2301 (quoting Forman 421 U.S. at 851, 95 S.Ct. at 2060). With the debut of the Landreth approach, the determination of whether a “security” is involved in a case becomes a two-step process. First, the Court must determine whether the alleged securities meet the two prongs of the Landreth test. If so, the instrument in question is a “security.” If not, though, the Court must take a second step; it must apply the Howey-Forman test, the outcome of which would be dispositive. C. Application of the Landreth Test Applying the Landreth test to the case at bar, the Court must first decide whether the “Loan Participation Sale and Trust Agreement,” the “Participation Certificate,” and the “participating ownership interest” bear labels which are traditionally associated with “securities,” the first prong of the test. Landreth held that “stock” is a traditional title. 471 U.S. at 686-87, 690, 105 S.Ct. at 2301-02, 2304. Another court held that an option to purchase “stock” warranted the same treatment as “stock.” See One-O-One Enters., Inc. v. Caruso, 848 F.2d 1283, 1288 (D.C.Cir.1988). The Court is convinced, however, that instruments other than “stock” can carry labels traditionally associated with securities. Some instruments bear titles which are so ingrained in the traditional discourse involving securities, as “stock” is, that the Supreme Court would likely find that they too satisfied this Landreth condition. Perhaps the labels “debenture” and “bond” would fall within this category. Although instruments other than stock may satisfy the Landreth test, the set of instruments satisfying the test may not extend far beyond “stock,” if at all. The Court had explicitly reserved the question of whether “notes” or other alleged securities would deserve the same treatment as “stock,” but it also emphasized that courts must consider “stock” as a unique category when determining whether the transaction in question involved a “security.” In fact, Landreth strongly suggests that the term “note” would probably not be an instrument bearing a title traditionally associated with “securities” because of the ambiguous nature of the term. 471 U.S. at 694, 105 S.Ct. at 2306. Moreover, it reinforced and elaborated upon the distinctions between “stock,” which was at issue in Landreth, and “notes.” In this case, the alleged securities are the Sale and Trust Agreement, the Participation Certificate, and the participating ownership interest. They involve a “loan,” which entails a “note,” and bear titles relating to the participation in the “loan.” Given their connection with loans and notes, these titles entail the same ambiguous character as the term “note” does. Since the term “note” does not satisfy the first Landreth prong, the Court holds that the participating ownership interest does not satisfy it either. Accord Home Guar. Ins. Corp. v. Third Fin. Servs., Inc., 667 F.Supp. 577 (M.D.Tenn.1987). Moreover, the two documents purporting to transfer the participation, the Sale and Trust Agreement and the Participation Certificate, bearing even more general titles, would also not satisfy this part of the Landreth test. In short, then, none of the alleged securities advanced by DMC merit coverage by the securities laws merely by virtue of their label and characteristics alone. D. Application of the Howey-Forman Test The failure of the Sale and Trust Agreement, the Participation Certificate, and the participating ownership interest to satisfy the Landreth test does not end the analysis of the transaction to ascertain the possible presence of a “security.” Instead, the Court must now decide whether the three alleged securities might fall within the category of “investment contracts” or of “instruments commonly known as securities.” To determine if they do, the Court must apply the Howey-Forman test to the purported securities. In applying this test, the Court will consider each of the elements of the test: “[1] the presence of an investment [2] in a common venture [3] premised on a reasonable expectation of profits [4] to be derived from the entrepreneurial or managerial efforts of others.” United Housing Found., Inc. v. Forman, 421 U.S. 837, 852, 95 S.Ct. 2051, 2060, 44 L.Ed.2d 621 (1975). 1. Presence of an Investment To determine the presence of an investment, the Sixth Circuit adopted the “risk capital” test presented in Great Western Bank & Trust v. Kotz, 532 F.2d 1252, 1257-58 (9th Cir.1976) (per curiam). The Court must consider six factors: (1) time; (2) collateral; (3) form of the obligation; (4) circumstances of issuance; (5) relationship between the amount borrowed and the size of the borrower's business; and (6) the intended use of the funds. See Union Planters Nat’l Bank v. Commercial Credit Business Loans, Inc., 651 F.2d 1174, 1182 (6th Cir.), cert. denied, 454 U.S. 1124, 102 S.Ct. 972, 71 L.Ed.2d 111 (1981). The Court will consider each factor in turn and apply them to the three alleged securities in this case: the Sale and Trust Agreement, the Participation Certificate, and the participating ownership interest. a. Time The first Great Western factor is the duration in which the purported investor’s money is retained. The “longer the money is held, the more probable it becomes that an investment is involved.” Union Planters, 651 F.2d at 1182; see Great Western, 532 F.2d at 1257-58. The plaintiff notes that the mortgage loan to Sowles was 18 months in length. The plaintiff uses this fact to argue that the time factor necessarily weighs in favor of including the Sale and Trust Agreement and the Participation Certificate within the definition of a “security.” The plaintiff states that since 15 U.S.C. § 78c(a)(10) (1982) excludes from the definition of “security” those “notes” which are nine months or less in duration, the “negative implication” is that all notes longer than nine months in duration are securities per se. This argument fails for two reasons. First, the security involved here is not a “note” but rather one or more of the instruments alleged by the plaintiff: the Sale and Trust Agreement, the Participation Certificate, or the participating ownership interest in the loan. If the plaintiff relies on the literal wording of the statute, then the nine-month rule concerning “notes” in section 78c(a)(10) would not apply here. Second, the Court cannot accept the plaintiffs “negative implication.” From the proposition that all notes nine months or less are not securities, it does not follow as a matter of logic that all notes longer than nine months are securities: some notes longer than nine months may not be “securities.” Occasionally, however, courts may draw “negative implications” from certain propositions of law in the course of construing the statutes or provisions. The negative implication is not the result of flawed logical reasoning, but rather is a conclusion elicited from the proposition of law prior to, in conjunction with, in the course of, or as an aid in the determination of legislative intent or some other method of statutory construction. Given the nature of a negative implication as an accessory to the divination of Congressional intent, the Court, before accepting the “negative implication” that the plaintiff propounds, must determine whether such an implication would comport with the Congressional policy behind the securities laws, The Court finds that the legislative intent behind and the purposes of the securities laws do not support the plaintiffs negative implication. Although it is true that the securities laws have a remedial purpose and the Court must read them to effectuate that purpose, it is also true that Congress did not intend the securities laws to be a cure for all frauds. Marine Bank v. Weaver, 455 U.S. 551, 556, 102 S.Ct. 1220, 1223, 71 L.Ed.2d 409 (1982). More specifically, Congress did not intend the securities laws to provide a remedy in disputes arising from ordinary commercial transactions. Union Planters Nat’l Bank v. Commercial Credit Business Loans, Inc., 651 F.2d 1174, 1185 (6th Cir.), cert. denied, 454 U.S. 1124, 102 S.Ct. 972, 71 L.Ed.2d 111 (1981). The negative implication from the statute, which the plaintiff proposes, threatens to stretch the scope of the securities laws to cover all loan transactions in which the notes are longer than nine months in duration. Given that this consequence of the plaintiff’s argument runs counter to the purpose of and the intent behind the securities laws, the court cannot accept it. Accordingly, the Court holds that notes longer than nine months are not securities per se, nor does their duration per se count in favor of inclusion within the securities laws for purposes of the risk capital test. This holding comports with other decisions involving notes. See Great Western Bank & Trust v. Kotz, 532 F.2d 1252, 1258 (9th Cir.1976) (per curiam) (10-month note not a security); Home Guar. Ins. Corp. v. Third Fin. Servs., Inc., 667 F.Supp. 577, 582 (M.D.Tenn.1987) (30-year notes not securities). A participation in a note with a duration longer than nine months need not be a security either. In Union Planters, for example, the Sixth Circuit held that a participation in a line of credit, advanced pursuant to a “Secured Term Loan Agreement” lasting more than five years, was not a security. Union Planters, 651 F.2d at 1182 (revolving term loan due on November 30, 1978); see id. at 1179 (loan agreement apparently signed on July 11, 1973). Having rejected the plaintiffs reasoning by way of “negative implication,” the Court notes that the proper way to analyze notes should be to exclude from the definition of “security” notes less than nine months in duration, according to the terms of the statute, unless the context or the purpose of the securities laws provided otherwise. As for notes longer than nine months, however, the exclusionary clause applying to short-term notes simply doesn’t apply. The courts should not automatically presume that long-term notes are within the definition of “security,” thereby placing a burden on defendants to show that the context required the courts not to apply the statute. Instead, the courts should analyze long-term loans in the same way that they would any other obligation which allegedly is a security. For participations in loans, however, the analysis need not even consider the nine-month exclusionary provision. Since the exclusionary clause for short-term loans by the terms of the statute applies only to “notes,” the Court need not consider it in the analysis of the loan participation and sales documents. Instead, it will analyze them as it would any other obligation or instrument. In comparing the three alleged securities to other instruments in terms of the time factor, the Court notes that the term of the underlying loan to Sowles was eighteen months. As between two polar opposites, a short term of a very few months and a long term consisting of decades, the Court holds that the underlying loan was of a relatively short term. Accord American Fletcher Mortgage Co. v. U.S. Steel Credit Corp., 635 F.2d 1247, 1254 (7th Cir.1980) (court considered three years to be a “short note maturity”), cert. denied, 451 U.S. 911, 101 S.Ct. 1982, 68 L.Ed.2d 300 (1981). Given that the Sowles loan was relatively short term, the Court also holds that the participating ownership interest in the Sowles loan and the Participation Certificate reflecting DMC’s interest were also of short duration. Once Sowles made the final loan payment and TransOhio gave DMC its share of the proceeds, the participating ownership interest in the Sowles loan would cease to exist and the Participation Certificate would no longer be valid. The Sale and Trust Agreement provided that TransOhio would disburse monthly the pro rata portions of loan payments to which DMC was entitled. Sale and Trust Agreement at 5, reprinted in Complaint app. A at 5. At most, then, the participating ownership interest and the Participation Certificate would have lasted only until a month (less a day) after Sowles submitted the final payment of the eighteen-month loan. The Sale and Trust Agreement was also of short duration. The agreement provided that the parties could negotiate for the participation in new loans and for future advances to old borrowers. Theoretically, the Agreement could last forever if the parties replaced retired loans with new loans under the agreement. Here, however, the only loan that the agreement covered ab initio was the Sowles loan. Thus, at the time the parties signed the Sale and Trust Agreement, the terms of the DMC-TransOhio Agreement contemplated that it would last only as long as the participating ownership interest and the Participation Certificate: eighteen months plus the time it would take for TransOhio to disburse DMC’s pro rata portion of the final loan payment. Again, this time period is relatively short and the parties did not extend the contract beyond this time by agreeing to bring new loans within the agreement. In sum, the Sale and Trust Agreement, the participating ownership interest, and the Participation Certificate were of relatively short duration. The time factor, then, counts against the position that these documents were “securities” within the meaning of the securities laws. b. Collateral “The existence of collateral is strongly suggestive of a commercial loan.” Union Planters Nat’l Bank v. Commercial Credit Business Loans, Inc., 651 F.2d 1174, 1182 (6th Cir.), cert. denied, 454 U.S. 1124, 102 S.Ct. 972, 71 L.Ed.2d 111 (1981). By contrast, unsecured transfers indicate the presence of an investment. “The unsecured lender is generally more dependent upon the managerial skills of the borrower than is a secured party who can look to the collateral in case of inability to repay.” Great Western Bank & Trust v. Kotz, 532 F.2d 1252, 1258 (9th Cir.1976) (per curiam). On one hand, the defendant contends that the Sowles loan was secured by a mortgage. Its argument, then, seems to be that DMC was a secured party which could turn to the Houston real estate in case Sowles defaulted. On the other hand, the plaintiff contends that DMC had no collateral. Focusing on the Sale and Trust Agreement, not the underlying loan, the plaintiff claims that “[a]ll [it] had was the naked promise of TransOhio that it would fulfill its duty as ‘lead lender/trustee.’ ” Plaintiff’s Memorandum-Contra Defendant’s Motion to Dismiss at 7. These arguments demonstrate the complexity added to the analysis by the participatory nature of the agreement between DMC and TransOhio. Were the agreement a simple loan, the Court could ascertain whether the lender’s advances were secured by collateral in the hands of the borrower. In order to assure that the borrower would submit its scheduled loan payments, the lender would take a security interest in the collateral. Here, however, DMC is “purchasing” a share of the loan TransOhio made to Sowles. DMC paid TransOhio funds representing a percentage of the money which TransOhio lent to Sowles. As loan repayments, Sowles paid TransOhio all of the money due on the loan and TransOhio paid DMC its pro rata share as DMC’s trustee. The real estate secured Sowles’ loan repayments to TransOhio, but DMC had no security interest in TransOhio property to secure TransOhio’s payments to DMC of its share of the loan proceeds. The issue then is whether, for the purposes of the Great Western “risk capital” test, assets in the hands of the underlying loan borrower can act as collateral for payments that the loan participant receives from the trustee, and thus count against inclusion of a loan participation within the definition of “security.” The determination of this issue will vary from case to case. Consider the two polar opposite possibilities concerning collateral backing payments to a loan participant. At one extreme, a loan company/trustee could sell “shares” in the profits to be received from loans made to certain borrowers without giving the participant any remedies in case the borrower defaults on the loan. Although collateral would secure the borrower's payments to the trustee, the loan participant has no security interest in it. The participant, then, would have to rely on the managerial expertise of the loan company/trustee to make sound loans to reliable borrowers and on the skill of the borrower to use the proceeds wisely. In such a case, the collateralization factor would militate in favor of inclusion within the definition of a “security.” At the other extreme, a loan company/“trustee” could borrow funds from a “participant” to lend to the ultimate borrower, and to do so, the trustee could give the “participant” a security interest in some of its own property. In such a case, not only would the loan to the third party have security in the form of, say, real estate, but the loan from the “participant” to the “trustee” would also have the backing of security. This double collateralization would without a doubt count against including this arrangement within the definition of a “security.” The facts concerning collateralization in the case at bar fall between these two extremes. In general, the Sales and Trust Agreement gives the participant a remedy in case of the borrower’s default, since the trustee must foreclose and share in the proceeds of any sale, although discretion as to the timing of such foreclosure lies with the trustee. Since DMC was the owner of the largest portion of the Sowles loan, however, DMC had the right to direct Trans-Ohio to foreclose on the real estate and recover its funds in the event that Sowles failed to make the scheduled loan payments. Sale and Trust Agreement, at 8-9, 10, reprinted in Complaint app. A. at 8-9, 10. If, however, Sowles paid TransOhio, but TransOhio failed to submit to DMC its pro rata share of Sowles’ monthly payments, then DMC would not have collateral in the possession of TransOhio upon which it could foreclose. Certainly, no contractual provision in the Loan Participation Sales and Trust Agreement would permit DMC to foreclose upon Sowles to pay Trans-Ohio’s obligations if Sowles had not defaulted. The lack of a DMC security interest in TransOhio property, however, does not weigh in favor of considering the Participation Certificate and the Sale and Trust Agreement to be “securities,” all things considered. TransOhio acted here as a mere conduit for loan payments from Sowles to DMC. The Sale and Trust Agreement in effect made DMC another lender for Sowles. TransOhio was but a trustee, receiving DMC’s share of payment’s on its behalf. Although Trans-Ohio's obligation to forward to DMC its share of the payments was not secured by collateral, the normal trustee-beneficiary relationship requiring disbursement of collected funds due to the beneficiary would not involve a security interest in the trustee’s property either. Nor would breach of that duty normally constitute securities fraud because of a lack of collateral securing the trustee’s payments to the beneficiary. If TransOhio failed to convey to DMC its share of loan payments from Sowles, the beneficiary could sue for breach of fiduciary duty. Such a breach, though, is not necessarily indicative of securities fraud. From a review of the circumstances, then, it appears that real estate in the hands of Sowles acts as collateral for the benefit of DMC for purposes of the “risk capital” test. See Union Planters, 651 F.2d at 1182 (borrower’s accounts receivables acted as collateral for purpose of “risk capital” test analysis of a participation in loan to borrower); cf. Home Guaranty Ins. Corp. v. Third Fin. Servs., Inc., 667 F.Supp. 577, 582 (M.D.Tenn.1987) (collateral in hands of borrower militated against inclusion of sale of entire loan within definition of “securities”). The Sale and Trust Agreement and the Participation Certificate which incorporates the Agreement by reference together grant DMC the right to direct a foreclosure on collateral in the possession of Sowles in case of Sowles' default. Accordingly, DMC was not dependent to any significant degree upon TransOhio’s managerial skills in making wise loans or in Sowles’ skill as a developer. In sum, then, the factor of collateralization militates against inclusion within the statutory definition of a “security” any of the three candidates: the participating ownership interest, the Sale and Trust Agreement, and the Participation Certificate. c. Form of the Obligation The form of the obligation “may help to explain the circumstances of issuance of the obligation.” Great Western Bank & Trust v. Kotz, 532 F.2d 1252, 1258 (9th Cir.1976) (per curiam). If the agreement between the parties referred to “shares” and the arrangement suggested an investment, then the form factor would militate in favor of inclusion within the statutory definition of a “security.” If, however, the agreement between the obligor and the ob-ligee was in the form of a “loan” or other normally commercial arrangement, the factor would not indicate a “security.” The defendant claims that the Sale and Trust Agreement refers to the transaction between DMC and TransOhio as a “loan,” which would not manifest the existence of a security. On the other hand, the plaintiff notes that the transferable “Participation Certificates” appear to be securities. From the Court’s examination of the Sale and Trust Agreement, it finds that the transaction between DMC and TransOhio was more than a mere “loan” in form. The Agreement provides for the sale of “participating ownership interests” in the enumerated loans. Pursuant to the agreement, DMC purchased a portion of the Sowles loan. According to the Sales and Trust Agreement, DMC’s purchase of an interest in the Sowles loan is not the same as lending money to TransOhio. If Sowles defaults, for example, DMC must look to Sowles and his real estate for a remedy, not Trans-Ohio; TransOhio had no obligation to pay DMC in case Sowles defaulted until the defendant collected from Sowles. Sale and Trust Agreement at 6, reprinted in Complaint app. A at 6. By contrast, if DMC had merely loaned money to TransOhio, then TransOhio would have to pay DMC scheduled payments even if Sowles had defaulted. Although the defendant is not correct in characterizing the forro of the transaction between DMC and TransOhio as a “loan,” the plaintiff is also incorrect when it asserts that the Participation Certificate in this case is in the normal form of a freely transferable security, such as a stock certificate. See Participation Certificate No. 1, reprinted in Plaintiff’s Supplemental Exhibit at 2. Two facts demonstrate the inaccuracy of the plaintiff’s characterization of the Participation Certificate. First, the transfer of the participating ownership interest of a loan, which the Participation Certificate represented, involved restrictions on the use of the funds that DMC transferred to TransOhio. These restrictions are relevant and weigh against inclusion of the Sale and Trust Agreement, the Participation Certificate, or the participating ownership interest within the category of “securities.” Ohio v. Crofters, 525 F.Supp. 1133, 1137 (S.D.Ohio 1981). “The greater the restrictions placed on the use of the funds and on the conduct of the borrower’s financial operations by the form of the obligation, the more likely the transaction was a commercial loan.” Id. Here, DMC used its funds to purchase a segment of the Sowles loan. Although TransOhio loaned Sowles money before selling DMC an interest in the loan, thereby allowing TransOhio to spend the cash received from DMC as it pleased, DMC's payment really represents a portion of the money TransOhio had lent to Sowles. That is, the Sale and Trust Agreement required TransOhio to allocate the money it received so as to reimburse itself for outlays it had made to Sowles, a single, limited use of the funds. Sowles, moreover, could use funds it received in only a limited fashion. The funds were for use only in the construction of the Project. The funds did not simply augment Sowles’ general operating fund. Second, although the participation interest itself is transferable, the Participation Certificate itself is not. It is not in the form of freely transferable obligations such as bonds, currency, or stock. The Participation Certificate is actually an addendum to the Sale and Trust Agreement. It specifies the names of the buyer and seller, serves as a receipt of the amount paid by DMC to TransOhio, and sets the interest rate DMC was to receive. The Participation Certificate, then, could only be a “security” if it were part of an “investment contract” composed of the Certificate and the Sale and Trust Agreement together. Although the form of the Participation Certificate is not suggestive of a security, the Court must also consider the form of the Sale and Trust Agreement. It is not clear from the face of the Sale and Trust Agreement whether or not it is in the form of an investment contract. Although the reality of the transaction seems to be that of a sale of a segment of a commercial loan, the parties couched the agreement in terms of participating ownership interests. Depending upon the circumstances, the contract as a simple purchase and sale agreement could encompass an investment or a simple purchase of part of a commercial loan. Nonetheless, other parts of the Sale and Trust Agreement do not fit the “investment contract” form. Specifically, the contract contains elaborate provisions for procedures to follow in case of default. Such provisions are not typically contained in a security. American Bank & Trust Co. v. Wallace, 529 F.Supp. 258, 262 (E.D.Ky.1981), aff’d, 702 F.2d 93 (6th Cir.1983). The form, then, of the Sale and Trust Agreement weighs slightly against including it within the definition of a “security.” If any obligation, though, were in the form of a security, it would be the participating ownership interests themselves. Since they are transferable and could be distributed among as many as ten owners, they could resemble securities in form. The “risk capital” test factor of form, then, weighs slightly in favor of inclusion within the definition of a “security,” the participating ownership interests, but not the Sale and Trust Agreement or the Participation Certificate. d. The Circumstances of Issuance This factor requires the court to determine whether the issuer, distributor, or alleged underwriter of the obligations distributed them to a single party or to a large class of investors. Such a determination would “shed[] light on the nature of the financing.” Great Western Bank & Trust v. Kotz, 532 F.2d 1252, 1258 (9th Cir.1976) (per curiam). The complaint alleges only that Trans-Ohio sold one participating ownership interest in the Sowles loan and DMC was the purchaser. Although the Sale and Trust Agreement gave TransOhio the right to sell other participating ownership interests to third parties, the record is void of any such allegation. The Court, then, concludes, then, that the pleadings indicate only a limited offering, an indication that the Sale and Trust Agreement, the Participation Certificate, and the participating ownership interest were not “securities.” Another circumstance of issuance relevant to the analysis is whether the impetus for the transaction came from the person who has the money or from the person who needs the money. See American Bank & Trust Co. v. Wallace, 702 F.2d 93, 96-97 (6th Cir.1983). In applying the “risk capital” test, the American Bank & Trust court noted that the borrowers in that case provided the impetus for the transaction rather than the lender. Id. Where the impetus comes from the person who needs the money, this circumstance of issuance would suggest that the transaction did not involve a security. In the case at bar, DMC alleges that TransOhio provided the impetus for the Sale and Trust Agreement. The defendant, according to the plaintiff, “was in severe financial trouble.” Complaint at 2. In order to raise cash, the defendant sold participation interests in its loans, including the one it sold to DMC. See id. at 2-3. Since the plaintiff itself notes that the party needing the money, the defendant, was the party seeking to enter the transaction, this circumstance of issuance also suggests that the transaction did not involve “securities.” Therefore, the factor of the circumstances of the issue militates against inclusion within the definition of a “security,” the Sale and Trust Agreement, the Participation Certificate pertaining thereto, and the participating ownership interest transferred therein. e. Relationship Between the Amount Borrowed and the Size of the Borrower’s Business The relationship between the amount “borrowed” and the size of the “borrower’s” business is important because “the larger the relative amount, the greater the stake, and therefore the risk, of the lender.” Great Western Bank & Trust v. Kotz, 532 F.2d 1252, 1258 (9th Cir.1976) (per curiam). The greater the risk, the more likely it is that the obligation was a “security,” as opposed to a “loan.” The plaintiff claims that the underlying loan constituted nearly all of Sowles’ total capital committed to the Project. This fact, however, is not directly relevant to the real issue: whether the loan amount was large in relation to Sowles’ entire business. Nonetheless, the Court cannot foreclose the possibility that plaintiff can prove the proposition that the loan amount was indeed relatively large. At this early juncture, and in the absence of any evidence in the record pertaining to this factor, the Court will resolve this matter in favor of the plaintiff. See American Bank & Trust Co. v. Wallace, 529 F.Supp. 258, 262 (E.D.Ky.1981), aff’d, 702 F.2d 93 (6th Cir.1983). Therefore, the Court must consider the relationship between the amount “borrowed” and the size of the “borrower’s” business to indicate that the Sale and Trust Agreement, the Participation Certificate, and the participating ownership interest do belong within the definition of a “security.” f. The Intended Use of the Funds “Proceeds constituting an essential ingredient of enterprise formation ... are generally securities. On the other hand, those used to maintain current financial position generally are not.” Great Western Bank & Trust v. Kotz, 532 F.2d 1252, 1258 (9th Cir.1976) (per curiam). According to the Great Western court, “funds spent on current operations” are not indicative of the existence of a security because they generally “generate faster return than do funds used for capital expenditure.” Id. In this case, the defendant claims that the Sowles used the funds only for the Project and not for capital formation. The plaintiff, however, contends that the use of the funds for the Project does not constitute the funding of current operations of an established business. The pleadings are devoid of information concerning the history of Sowles’ business. The Court is not sure whether the Project was Sowles’ first or only project, or whether it was but one of many such developments. If the Project was the sum total of Sowles’ business, the funds would constitute money to form Sowles’ enterprise as well, thus suggesting that the participation was a “security.” If the Project was but a small part of Sowles’ business, then the transaction would appear more to be the funding of current operations of an established business. Nonetheless, the parties do not dispute the fact that the funds were to be used as seed money for the Project. Having only this fact at its disposal, and in the context of a Rule 12(b)(6) motion to dismiss, the Court must conclude that the use of the funds were more indicative of an investment than a loan. The funds appear more like “risk capital to obtain new productive assets” than the capital for the financing of current operations. Thus, the Court must weigh this factor in favor of inclusion within the definition of “securities” the participating ownership interest, the Participation Certificate, and the Sale and Trust Agreement. Having explored the application of the Great Western “risk capital” test, the Court must now ascertain whether these six factors combined suggest that the Sale and Trust Agreement, the Participation Certificate, and the participation ownership interest involved an investment or not. No one factor is dispositive in this determination, but rather the Court must consider the totality of the circumstances. See Great Western, 532 F.2d at 1258. In considering all of the circumstance surrounding this transaction, the Court determines that the Sale and Trust Agreement was not an agreement involving an “investment” within the meaning of the securities laws. No investment took place because the contract was of short duration, was supported by collateral, was not in a form suggestive of a “security,” and was not issued under circumstances which would suggest that the agreement involved a “security.” The large size of the financing and the intended use of the funds cannot outweigh the other factors. For the same reasons, the Participation Certificate as well did not entail an “investment.” The participating ownership interest itself is a closer case. It more resembles a “security” in form than the Sale and Trust Agreement or the Participation Certificate. Nonetheless, the Court concludes on the basis of the remaining three factors, including the most critical element, time, that the participating ownership interest did not manifest the presence of an investment. The form, the relatively large size of the financing, and the use of the funds to build the entire Project are not enough in and of themselves to outweigh the other factors and indicate here that the participating ownership interest was an investment. Cf. Home Guar. Ins. Corp. v. Third Fin. Servs., Inc., 667 F.Supp. 577, 582 (M.D.Tenn.1987) (despite large size of loan, financing entire condominium project, sale of loans to finance company was not a “security”). 2. Common Venture The second prong of the Howey-Forman test requires the Court to consider whether the transaction here created a “common venture.” To decide this question, the Sixth Circuit has adopted the so-called “horizontal commonality” test. The “horizontal commonality” test directs the Court to consider whether the record shows “a sharing or pooling of funds.” Union Planters Nat’l Bank v. Commercial Credit Business Loans, Inc., 651 F.2d 1174, 1183 (6th Cir.), cert. denied, 454 U.S. 1124, 102 S.Ct. 972, 71 L.Ed.2d 111 (1981). That is, the Court must determine if the arrangement “ties the fortunes of each investor in a pool of investors to the success of the overall venture.” Id.; see, e.g., Hart v. Pulte Homes Corp., 735 F.2d 1001, 1004 (6th Cir.1984); Curran v. Merill Lynch, Pierce, Fenner and Smith, 622 F.2d 216, 221-24 (6th Cir.1980), aff’d on other grounds, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982). In the facts of the case at bar, the Court determines that DMC and TransOhio did enter into a common enterprise. Like Union Planters, the fortunes of the two lenders in this case “were inextricably intertwined.” Union Planters, 651 F.2d at 1183. The ownership interests of DMC and TransOhio “were not unitary in nature; the success or failure of each was not without regard to the other. The profits or losses flowed uniformly to each.” Id. Therefore, the Court believes that the Loan Participation Sale and Trust Agreement, supplemented by the Participation Certificate, provided for a common venture between DMC and TransOhio. The transfer of the participating ownership interest pursuant to the agreement initiated this common venture. The Sale and Trust Agreement, the Participation Certificate, and the participating ownership interest, then, all satisfy this second prong of the Howey-Forman test. 3. Reasonable Expectation of Profits In the third prong of the Howey-Forman test, the plaintiff must show that it had a reasonable expectation that it would accrue profits. The defendant argues that the return received by DMC consisted in repayments of principal and payments of interest. The fixed nature of the interest payment, according to the defendant, necessarily places the Sale and Trust Agreement, the Participation Certificate, and the participating ownership interest outside the scope of the category of “securities.” More specifically, the defendant could argue that DMC’s fixed returns were not “profits,” within the meaning of the Howey-Forman test. The Court, however, rejects the notion that the fixed nature of the return of an instrument per se bars its inclusion within the category of “profits.” The Sixth Circuit noted that “the Securities Acts encompass debt as well as equity instruments,” which commonly offer fixed returns. Union Planters Nat’l Bank v. Commercial Credit Business Loans, Inc., 651 F.2d 1174, 1184 (6th Cir.) (dicta), cert. denied, 454 U.S. 1124, 102 S.Ct. 972, 71 L.Ed.2d 111 (1981). Although the Court considers the fixed nature of the return to be significant, it is not dispositive. Other factors, such as contingencies of the return, are relevant. The proper approach to this question is to determine whether the plaintiff had an expectation of capital appreciation. Union Planters, 651 F.2d at 1184-85; see United Housing Found., Inc. v. Forman, 421 U.S. 837, 852-53, 95 S.Ct. 2051, 2060-61, 44 L.Ed.2d 621 (1975); American Bank & Trust Co. v. Wallace, 529 F.Supp. 258, 263 (E.D.Ky.1981), aff’d, 702 F.2d 93 (6th Cir.1983); Ohio v. Crofters, 525 F.Supp. 1133, 1139 (S.D.Ohio 1981). The fixed nature of the return is one factor to consider in this analysis. Here, like Union Planters, DMC’s return “was simply the repayment of the amounts advanced plus a fixed rate of interest.” Union Planters, 651 F.2d at 1185. The Participation Certificate set the rate at 12.5%. Unlike Union Planters, however, the interest payments were somewhat contingent. In Union Planters, the participation trustee held back 15% of the loan amounts to insure the payment of interest to the loan participant. The participant never disputed the adequacy of this fund and the participant received all of the interest to which it was entitled prior to the collapse of the borrower. Thus, payment of the interest was contingent only upon the passage of time. See id. Here, however, TransOhio retained no such fund to insure the payment of interest to DMC. Moreover, if Sowles defaulted on the loan, DMC would receive nothing from TransOhio until TransOhio was successful in collecting from Sowles. An interest fund, however, is not a necessary condition of a commercial transaction. Further, the Sale and Trust Agreement indicates that the plaintiffs return “was not of a different nature than in a commercial lending transaction.” Id. The contingencies for return were only those associated with the normal commercial loans. Accordingly, the Court holds that DMC “had no reasonable expectation of profit as that term is used in the Howey-Forman securities context” with regard to the Sale and Trust Agreement, the Participation Certificate, and the participating ownership interest. Id. 4. A Return Derived from the Efforts of Others The last element of the Howey-Forman test requires the Court to determine whether the alleged investor’s return was “to be derived from the entrepreneurial or managerial efforts of others.” United Housing Found., Inc. v. Forman, 421 U.S. 837, 852, 95 S.Ct. 2051, 2060, 44 L.Ed.2d 621 (1975). According to the complaint, Sowles provided some managerial and entrepreneurial efforts by bearing the responsibility for the development of the Project. Complaint at 3. TransOhio, the party seeking the alleged investment, however, bore only the responsibility to render administrative services of the kind that a lend leader in a loan participation agreement would normally perform. See generally Sales and Trust Agreement. The Howey-Forman requirement that “others” perform “entrepreneurial or managerial efforts” seems quite broad in application. The word “others” suggests that the plaintiff can satisfy the requirement as long as it can show that someone other than DMC performed such efforts. The plaintiff does not need to prove that the person taking the money is himself performing the entrepreneurial or managerial services. After all, when the public invests in an enterprise or a specific project, the company seeking these investments could subcontract for the performance of the tasks necessary to run the enterprise or complete the project. Similarly, if a person buys the stock of a shell company which loans money to entrepreneurs, the money paid to the shell is no less an investment simply because the shell itself performs no entrepreneurial efforts. Also, language in Howey indicates that performance by “others” is not limited to the person taking the alleged investor’s money. In its formulation of the Howey-Forman test, the final prong to be met is the requirement of a showing that the investor expects its return “from the efforts of the promoter or a third party.” SEC v. W.J. Howey Co., 328 U.S. 293, 299, 66 S.Ct. 1100, 1103, 90 L.Ed. 1244 (1946) (emphasis added). The Supreme Court, then, clearly allows the final prong of the test to be met if anyone except the plaintiff performs “entrepreneurial or managerial” tasks pursuant to the investment. In Howey, for instance, the W.J. Howey Company sold to the public small tracts of land in a citrus grove. When the sale took place, W.J. Howey salesmen encouraged the purchasers to contract with Howey-in-the-Hills Service, Inc., an affiliated but separate company, for the harvesting and marketing of the fruit grown on the purchasers’ land. Id. at 294-95, 66 S.Ct. at 1100-01. The sale of land and service contracts, in effect, enabled the purchasers to share in the profits of a large citrus fruit enterprise. Id. at 299-300, 66 S.Ct. at 1103-04. Thus, the Court held that these transactions involved the sale of “securities,” despite the fact that the company taking the investors’ money, W.J. Howey Company, was not the same as the corporation managing the fruit enterprise, Howey-in-the Hills. In the case at bar, TransOhio was a promoter and Sowles was a third party in relation to DMC. TransOhio’s administrative duties performed in servicing the Sowles loan cannot satisfy the Howey-Forman requirement of “entrepreneurial or managerial efforts of others.” The Sixth Circuit held that activities of a lend leader in a loan participation arrangement are not “entrepreneurial or managerial.” See Union Planters Nat’l Bank v. Commercial Credit Business Loans, Inc., 651 F.2d 1174, 1185 (6th Cir.), cert. denied, 454 U.S. 1124, 102 S.Ct. 972, 71 L.Ed.2d 111 (1981). Thus, TransOhio’s activities cannot satisfy this prong of the test. Nonetheless, someone other than DMC did provide “entrepreneurial or managerial efforts” in this arrangement, specifically Sowles. Sowles performed such tasks by initiating the Project and constructing the buildings on the Houston real estate. Thus, DMC did expect a return from the “entrepreneurial or managerial efforts of others.” Accordingly the Court holds that the Sales and Trust Agreement, the Participation Certificate, and the participating ownership interest all meet the final prong of the Howey-Forman test. E. Conclusion The Court holds that the Loan Participation Sale and Trust Agreement, the Participation Certificate pertaining thereto, and the participating ownership interest in the Sowles loan are not “securities” within the meaning of the securities laws. Given the variable nature of the names and characteristics of these items, they do not fulfill the Landreth conditions for a “security.” Moreover, they do not satisfy the Howey-Forman test. Although the plaintiff successfully alleged a common venture where it derived income from the entrepreneurial or managerial efforts of others, there was neither an investment nor reasonable expectations of profits with regard to the alleged “securities.” Therefore, the defendant’s motion to dismiss is meritorious with respect to the allegations of securities fraud, Counts Two and Three of the Complaint. II. PATTERN OF RACKETEERING ACTIVITY UNDER RICO In addition to the argument that the Court should dismiss the plaintiff’s claims based upon the securities laws, the defendant also contends that the plaintiff failed to state a claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) upon which relief can be granted. Specifically, it argues that the plaintiff failed to set forth in its complaint claims sufficient to plead a “pattern of racketeering activity” within the meaning of RICO. In its complaint, the plaintiff does allege that the defendant used or invested income derived from a “pattern of racketeering activity” in the operation of enterprises engaged in or affecting interstate commerce. See 18 U.S.C. § 1962(a) (1982). Moreover, the plaintiff claims that the defendant entered a conspiracy to violate section 1962(a), itself a violation of RICO. See id. § 1962(d). Persons injured by another’s violation of section 1962 may file suit therefor in a district court for treble damages. See id. § 1964(c). Despite the recitation of these claims, though, the defendant contends that the plaintiffs claims are insufficient to conform to the statutory definition of a “pattern of racketeering activity.” 18 U.S.C. § 1961(5) (1982). Section 1961(5) defines “pattern of racketeering activity” to require a showing of “at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity.” Id. § 1961(5). To clarify this somewhat vague definition, the defendant advances the proposition that a “pattern of racketeering activity” requires a showing that the defendant engaged in multiple criminal schemes or multiple criminal episodes. Although the courts are split as to what constitutes a pattern of racketeering activity, the Court endorses this flexible method of identifying patterns. To be precise, then, RICO requires a showing that the defendant engaged in either (1) more than one scheme; or (2) an open-ended, continuous scheme which contains a multiplicity of criminal episodes. MHC, Inc. v. UMW, 685 F.Supp. 1370, 1384-85 (E.D.Ky.1988); see Cincinnati Gas & Elec. Co. v. General Elec. Co., 656 F.Supp. 49, 79 (S.D.Ohio 1986); Temporaries, Inc. v. Maryland Nat’l Bank, 638 F.Supp. 118, 123 (D.Md.1986); Papai v. Cremosnik, 635 F.Supp. 1402, 1412-13 (N.D.Ill.1986); Soper v. Simmons Int’l, Ltd., 632 F.Supp. 244, 253-54 (S.D.N.Y.1986); see generally Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n. 14, 105 S.Ct. 3275, 3285 n. 14, 87 L.Ed.2d 346 (1985). In any case, the crux of the defendant’s argument is that the plaintiff has failed to allege “at least two acts of racketeering activity.” TransOhio reasoned that the plaintiff can neither show multiple schemes or multiple criminal episodes. It is apparent from TransOhio’s motion to dismiss that it reads the Complaint to recite allegations only of the alleged fraud against DMC. With only one criminal episode in the Complaint, TransOhio posits that the Complaint fails to allege a pattern of racketeering activity. The plaintiff replies that the Complaint does allege two acts of racketeering, namely the defendant’s actions in defrauding DMC and TransOhio’s alleged fraud on Hollywood Federal Savings and Loan Association (“Hollywood Federal”). The Court notes that the Complaint indeed contains allegations of a fraud similar to the one alleged here. According to the Complaint, TransOhio signed a sale and trust agreement with Hollywood Federal identical to the one signed by DMC. As a result of alleged failures to ensure that Hollywood Federal, the loan participant, would receive payment, failures similar to the kind of omissions alleged in this case, Hollywood Federal filed suit in the Southern District of Florida. In its reply memorandum, the defendant argues that the events involving Hollywood Federal cannot suffice to allege a second act or episode