A federal appeals court in New York has ruled that loan participations sold by banks are not securities, and therefore should not be held to the disclosure standards of stocks, bonds, and other paper.

The two-to-one decision of the U.S. Court of Appeals for the Second Circuit came in a closely watched case involving sales by Security Pacific National Bank of portions of loans made to Integrated Resources Inc.

With the chief judge on the circuit court, James Oakes, dissenting in the decision, legal experts are expecting an appeal or a petition for rehearing before all the New York circuit judges.

Lower Court Upheld

But the two-judge majority affirmed a lower court's decision that said loan participations could not be considered securities because purchasers are individually in a position to watch and protect their investments.

Security Pacific, since April a unit of BankAmerica Corp., was sued by 11 financial institutions after Integrated Resources defaulted on short-term loans they had participated in.

The plaintiffs contended that Security Pacific should have warned them more fully about the financial condition of Integrated, a real estate and financial services concern that has been under a bankruptcy court's protection since February 1990.

Distinction Drawn

While sales of portions of loans are commonplace, the plaintiffs argued that the speed and sophistication of Security Pacific's loan participation program made the notes more like commercial securities.

In a friend-of-the-court brief, the Securities and Exchange Commission also argued that loan participation programs similar to Security Pacific's should be governed by federal securities laws.

Judge Oakes agreed with that point, writing, "The bottom line is that the market closely resembles the commercial paper market."

Appeal Weighed

Jack Levin, a lawyer who represented all but two of the plaintiffs on the appeal, said they were considering a further appeal or rehearing. The case is known as Banco Espanol de Credit v. Security Pacific National Bank.

"We think it's an important case," said Mr. Levin, a lawyer at Howard Darby & Levin in New York. "It deals with the application of the securities laws to any number of instruments that the imagination of the financial community can create."

Security Pacific continues to operate the loan program, said Jed Rakoff, the bank's New York lawyer at Fried, Frank, Harris, Shriver & Jacobson.

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