Venturing into territory where it called the case law “sparse,” a divided New York Court of Appeals ruled Tuesday that “subordinated” promissory notes are securities under the meaning of the state Uniform Commercial Code.

The 5-2 ruling backed the reasoning of Southern District Judge Paul Crotty, sitting on the 2nd U.S. Circuit Court of Appeals by designation, who said last summer in Highland Capital Management v. Schneider, 460 F3d 308, that his reading of UCC �8-102-(15) seemed to indicate that the notes met the definition of securities. But Crotty and 2nd Circuit Judges Ralph Winter and Reena Raggi said the question is important in the securities industry and asked the state Court of Appeals to settle the matter.

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