FIRST DIVISION

On October 27, 2000, respondent Noel Manero requested public respondent SEC to investigate

petitioners business. He claimed that he attended a seminar conducted by petitioner where the
POWER HOMES UNLIMITED G.R. No. 164182
CORPORATION, latter claimed to sell properties that were inexistent and without any brokers license.
Petitioner,
Present:
On November 21, 2000, one Romulo E. Munsayac, Jr. inquired from public
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ, respondent SEC whether petitioners business involves legitimate network marketing.
- versus - CORONA,
AZCUNA, and
LEONARDO-DE CASTRO, JJ. On the bases of the letters of respondent Manero and Munsayac, public respondent

SEC held a conference on December 13, 2000 that was attended by petitioners incorporators
SECURITIES AND EXCHANGE
COMMISSION AND NOEL Promulgated: John Lim, Paul Nicolas and Leonito Nicolas. The attendees were requested to submit copies of
MANERO,
Respondents. February 26, 2008 petitioners marketing scheme and list of its members with addresses.

x-------------------------------------------------x
The following day or on December 14, 2000, petitioner submitted to public

respondent SEC copies of its marketing course module and letters of accreditation/authority or
DECISION
confirmation from Crown Asia, Fil-Estate Network and Pioneer 29 Realty Corporation.
PUNO, C.J.:
On January 26, 2001, public respondent SEC visited the business premises of

This petition for review seeks the reversal and setting aside of the July 31, 2003 petitioner wherein it gathered documents such as certificates of accreditation to several real

Decision[1] of the Court of Appeals that affirmed the January 26, 2001 Cease and Desist Order estate companies, list of members with web sites, sample of member mail box, webpages of

(CDO)[2] of public respondent Securities and Exchange Commission (SEC) enjoining petitioner two (2) members, and lists of Business Center Owners who are qualified to acquire real estate

Power Homes Unlimited Corporations (petitioner) officers, directors, agents, representatives properties and materials on computer tutorials.

and any and all persons claiming and acting under their authority, from further engaging in the On the same day, after finding petitioner to be engaged in the sale or offer for sale or

sale, offer for sale or distribution of securities; and its June 18, 2004 Resolution[3] which denied distribution of investment contracts, which are considered securities under Sec. 3.1 (b) of

petitioners motion for reconsideration. Republic Act (R.A.) No. 8799 (The Securities Regulation Code),[5] but failed to register them in

The facts: Petitioner is a domestic corporation duly registered with public respondent violation of Sec. 8.1 of the same Act,[6] public respondent SEC issued a CDO that reads:

SEC on October 13, 2000 under SEC Reg. No. A200016113. Its primary purpose is:
To engage in the transaction of promoting, acquiring, managing,
leasing, obtaining options on, development, and improvement of real
estate properties for subdivision and allied purposes, and in the purchase,
sale and/or exchange of said subdivision and properties through network
marketing.[4]
WHEREFORE, pursuant to the authority vested in the
Commission, POWER HOMES UNLIMITED, CORP., its officers, directors,
agents, representatives and any and all persons claiming and acting under
their authority, are hereby ordered to immediately CEASE AND DESIST from
further engaging in the sale, offer or distribution of the securities upon the
receipt of this order.

In accordance with the provisions of Section 64.3 of Republic Act

No. 8799, otherwise known as the Securities Regulation Code, the parties
 subject of this Cease and Desist Order may file a request for the lifting
thereof within five (5) days from receipt.[7]
On February 5, 2001, petitioner moved for the lifting of the CDO, which public respondent SEC
denied for lack of merit on February 22, 2001.
Aggrieved, petitioner went to the Court of Appeals imputing grave abuse of discretion
amounting to lack or excess of jurisdiction on public respondent SEC for issuing the order. It also
applied for a temporary restraining order, which the appellate court granted.
On May 23, 2001, the Court of Appeals consolidated petitioners case with CA-G.R. [SP] No.
62890 entitled Prosperity.Com, Incorporated v. Securities and Exchange Commission
(Compliance and Enforcement Department), Cristina T. De La Cruz, et al.
On June 19, 2001, petitioner filed in the Court of Appeals a Motion for the Issuance
of a Writ of Preliminary Injunction. On July 6, 2001, the motion was heard. On July 12, 2001,
public respondent SEC filed its opposition. On July 13, 2001, the appellate court granted
petitioners motion, thus:
Considering that the Temporary Restraining Order will expire
tomorrow or on July 14, 2001, and it appearing that this Court cannot
resolve the petition immediately because of the issues involved which
require a further study on the matter, and considering further that with the
continuous implementation of the CDO by the SEC would eventually result
to the sudden demise of the petitioners business to their prejudice and an
irreparable damage that may possibly arise, we hereby resolve to grant the
preliminary injunction.
WHEREFORE, let a writ of preliminary injunction be issued in favor
of petitioner, after posting a bond in the amount of P500,000.00 to answer
whatever damages the respondents may suffer should petitioner be
adjudged not entitled to the injunctive relief herein granted.[8]
On August 8, 2001, public respondent SEC moved for reconsideration, which was not
resolved by the Court of Appeals.
On July 31, 2003, the Court of Appeals issued its Consolidated Decision. The
disposition pertinent to petitioner reads:[9]
WHEREFORE, x x x x the petition for certiorari and prohibition
filed by the other petitioner Powerhomes Unlimited Corporation is hereby
DENIED for lack of merit and the questioned Cease and Desist Order issued
by public respondent against it is accordingly AFFIRMED IN TOTO.
On June 18, 2004, the Court of Appeals denied petitioners motion for
reconsideration;[10] hence, this petition for review.
The issues for determination are: (1) whether public respondent SEC followed due
process in the issuance of the assailed CDO; and (2) whether petitioners business constitutes an
investment contract which should be registered with public respondent SEC before its sale or
offer for sale or distribution to the public.
On the first issue, Sec. 64 of R.A. No. 8799 provides:
Sec. 64. Cease and Desist Order. 64.1. The Commission, after proper
investigation or verification, motu proprio or upon verified complaint by
any aggrieved party, may issue a cease and desist order without the
necessity of a prior hearing if in its judgment the act or practice, unless
restrained, will operate as a fraud on investors or is otherwise likely to cause
grave or irreparable injury or prejudice to the investing public.
We hold that petitioner was not denied due process. The records reveal that public
respondent SEC properly examined petitioners business operations when it (1) called into
conference three of petitioners incorporators, (2) requested information from the
incorporators regarding the nature of petitioners business operations, (3) asked them to submit
documents pertinent thereto, and (4) visited petitioners business premises and gathered
information thereat. All these were done before the CDO was issued by the public respondent
SEC. Trite to state, a formal trial or hearing is not necessary to comply with the requirements of
due process. Its essence is simply the opportunity to explain ones position. Public respondent
SEC abundantly allowed petitioner to prove its side.
 The second issue is whether the business of petitioner involves an investment

contract that is considered security[11] and thus, must be registered prior to sale or offer for sale
An investment contract is defined in the Amended Implementing Rules and
or distribution to the public pursuant to Section 8.1 of R.A. No. 8799, viz:
Regulations of R.A. No. 8799 as a contract, transaction or scheme (collectively contract)
Section 8. Requirement of Registration of whereby a person invests his money in a common enterprise and is led to expect
Securities. 8.1. Securities shall not be sold or offered for sale or distribution
within the Philippines, without a registration statement duly filed with and profits primarily from the efforts of others.[13]
approved by the Commission. Prior to such sale, information on the
securities, in such form and with such substance as the Commission may
It behooves us to trace the history of the concept of an investment contract under
prescribe, shall be made available to each prospective purchaser.
R.A. No. 8799. Our definition of an investment contract traces its roots from the 1946 United

States (US) case of SEC v. W.J. Howey Co.[14] In this case, the US Supreme Court was confronted
Public respondent SEC found the petitioner as a marketing company that promotes and
with the issue of whether the Howey transaction constituted an investment contract under the
facilitates sales of real properties and other related products of real estate developers through
Securities Acts definition of security.[15] The US Supreme Court, recognizing that the term
effective leverage marketing. It also described the conduct of petitioners business as follows:
investment contract was not defined by the Act or illumined by any legislative report,[16] held
The scheme of the [petitioner] corporation requires an investor that Congress was using a term whose meaning had been crystallized[17] under the states blue
to become a Business Center Owner (BCO) who must fill-up and sign its
application form. The Terms and Conditions printed at the back of the sky laws[18] in existence prior to the adoption of the Securities Act.[19] Thus, it ruled that the use
application form indicate that the BCO shall mean an independent
of the catch-all term investment contract indicated a congressional intent to cover a wide range
representative of Power Homes, who is enrolled in the companys referral
program and who will ultimately purchase real property from any of investment transactions.[20] It established a test to determine whether a transaction falls
accredited real estate developers and as such he is entitled to a referral
bonus/commission. Paragraph 5 of the same indicates that there exists no within the scope of an investment contract.[21] Known as the Howey Test, it requires a
employer/employee relationship between the BCO and the Power Homes
transaction, contract, or scheme whereby a person (1) makes an investment of money, (2) in a
Unlimited, Corp.
common enterprise, (3) with the expectation of profits, (4) to be derived solely from the efforts
The BCO is required to pay US$234 as his enrollment fee. His
enrollment entitles him to recruit two investors who should pay US$234 of others.[22] Although the proponents must establish all four elements, the US Supreme Court
each and out of which amount he shall receive US$92. In case the two stressed that the Howey Test embodies a flexible rather than a static principle, one that is
referrals/enrollees would recruit a minimum of four (4) persons each
recruiting two (2) persons who become his/her own down lines, the BCO capable of adaptation to meet the countless and variable schemes devised by those who seek
will receive a total amount of US$147.20 after deducting the amount of
US$36.80 as property fund from the gross amount of US$184. After the use of the money of others on the promise of profits.[23] Needless to state, any investment
recruiting 128 persons in a period of eight (8) months for each Left and contract covered by the Howey Test must be registered under the Securities Act, regardless of
Right business groups or a total of 256 enrollees whether directly referred
by the BCO or through his down lines, the BCO who receives a total amount whether its issuer was engaged in fraudulent practices.
of US$11,412.80 after deducting the amount of US$363.20 as property
fund from the gross amount of US$11,776, has now an accumulated
amount of US$2,700 constituting as his Property Fund placed in a Property After Howey came the 1973 US case of SEC v. Glenn W. Turner Enterprises, Inc. et
Fund account with the Chinabank. This accumulated amount of US$2,700 al.[24] In this case, the 9th Circuit of the US Court of Appeals ruled that the element that profits
is used as partial/full down payment for the real property chosen by the
BCO from any of [petitioners] accredited real estate developers.[12] must come solely from the efforts of others should not be given a strict interpretation. It held

that a literal reading of the requirement solely would lead to unrealistic results. It reasoned out
that its flexible reading is in accord with the statutory policy of affording broad protection to
the public. Our R.A. No. 8799 appears to follow this flexible concept for it defines an investment
contract as a contract, transaction or scheme (collectively contract) whereby a
person invests his money in a common enterprise and is led to expect profits not solely but
primarily from the efforts of others. Thus, to be a security subject to regulation by the SEC, an
investment contract in our jurisdiction must be proved to be: (1) an investment of money, (2)
in a common enterprise, (3) with expectation of profits, (4) primarily from efforts of others.
Prescinding from these premises, we affirm the ruling of the public respondent SEC
and the Court of Appeals that the petitioner was engaged in the sale or distribution of an
investment contract. Interestingly, the facts of SEC v. Turner[25] are similar to the case at
bar. In Turner, the SEC brought a suit to enjoin the violation of federal securities laws by a
company offering to sell to the public contracts characterized as self-improvement courses. On
appeal from a grant of preliminary injunction, the US Court of Appeals of the 9th Circuit held
that self-improvement contracts which primarily offered the buyer the opportunity of earning
commissions on the sale of contracts to others were investment contracts and thus were
securities within the meaning of the federal securities laws. This is regardless of the fact that
buyers, in addition to investing money needed to purchase the contract, were obliged to
contribute their own efforts in finding prospects and bringing them to sales meetings. The
appellate court held:
It is apparent from the record that what is sold is not of the usual
business motivation type of courses. Rather, the purchaser is really buying
the possibility of deriving money from the sale of the plans by Dare to
individuals whom the purchaser has brought to Dare. The promotional
aspects of the plan, such as seminars, films, and records, are aimed at
interesting others in the Plans. Their value for any other purpose is, to put
it mildly, minimal.
Once an individual has purchased a Plan, he turns his efforts
toward bringing others into the organization, for which he will receive a part
of what they pay. His task is to bring prospective purchasers to Adventure
Meetings.
The business scheme of petitioner in the case at bar is essentially similar. An investor enrolls in
petitioners program by paying US$234. This entitles him to recruit two (2) investors who pay
US$234 each and out of which amount he receives US$92. A minimum recruitment of four (4)
investors by these two (2) recruits, who then recruit at least two (2) each, entitles the principal
investor to US$184 and the pyramid goes on.
We reject petitioners claim that the payment of US$234 is for the seminars on
leverage marketing and not for any product. Clearly, the trainings or seminars are merely
designed to enhance petitioners business of teaching its investors the know-how of its multi-
level marketing business. An investor enrolls under the scheme of petitioner to be entitled to
recruit other investors and to receive commissions from the investments of those directly
recruited by him. Under the scheme, the accumulated amount received by the investor comes
primarily from the efforts of his recruits.
We therefore rule that the business operation or the scheme of petitioner constitutes
an investment contract that is a security under R.A. No. 8799. Thus, it must be registered with
public respondent SEC before its sale or offer for sale or distribution to the public. As petitioner
failed to register the same, its offering to the public was rightfully enjoined by public respondent
SEC. The CDO was proper even without a finding of fraud. As an investment contract that is
security under R.A. No. 8799, it must be registered with public respondent SEC, otherwise the
SEC cannot protect the investing public from fraudulent securities. The strict regulation of
securities is founded on the premise that the capital markets depend on the investing publics
level of confidence in the system.
IN VIEW WHEREOF, the petition is DENIED. The July 31, 2003 Decision of the Court of
Appeals, affirming the January 26, 2001 Cease and Desist Order issued by public respondent
Securities and Exchange Commission against petitioner Power Homes Unlimited Corporation,
and its June 18, 2004 Resolution denying petitioners Motion for Reconsideration are
AFFIRMED. No costs.
SO ORDERED.
 THIRD DIVISION each pair of down-lines, the buyer-sponsor received a US$92.00 commission. But referrals in a
SECURITIES AND EXCHANGE G.R. No. 164197 day by the buyer-sponsor should not exceed 16 since the commissions due from excess referrals
COMMISSION, inure to PCI, not to the buyer-sponsor.

Petitioner, Present:
VELASCO, JR., J., Chairperson, Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc. (GVI), which
- versus - PERALTA, company stopped operations after the Securities and Exchange Commission (SEC) issued a

ABAD, cease and desist order (CDO) against it. As it later on turned out, the same persons who ran the

MENDOZA, and affairs of GVI directed PCIs actual operations.

PERLAS-BERNABE, JJ. In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI, alleging that the
PROSPERITY.COM, INC., latter had taken over GVIs operations. After hearing,[1] the SEC, through its Compliance and
Respondent. Promulgated: Enforcement unit, issued a CDO against PCI. The SEC ruled that PCIs scheme constitutes an

January 25, 2012 Investment contract and, following the Securities Regulations Code,[2] it should have first

x --------------------------------------------------------------------------------------- x registered such contract or securities with the SEC.

DECISION
ABAD, J.:
This case involves the application of the Howey test in order to determine if a
particular transaction is an investment contract.
The Facts and the Case
Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without providing
internet service. To make a profit, PCI devised a scheme in which, for the price of US$234.00
(subsequently increased to US$294), a buyer could acquire from it an internet website of a 15-
Mega Byte (MB) capacity. At the same time, by referring to PCI his own down-line buyers, a first-
time buyer could earn commissions, interest in real estate in the Philippines and in the United
States, and insurance coverage worth P50,000.00.
Instead of asking the SEC to lift its CDO in accordance with Section 64.3 of Republic Act (R.A.)
8799, PCI filed with the Court of Appeals (CA) a petition for certiorari against the SEC with an
application for a temporary restraining order (TRO) and preliminary injunction in CA-G.R. SP
62890. Because the CA did not act promptly on this application for TRO, on January 31, 2001
PCI returned to the SEC and filed with it before the lapse of the five-day period a request to lift
the CDO. On the following day, February 1, 2001, PCI moved to withdraw its petition before the
CA to avoid possible forum shopping violation.
During the pendency of PCIs action before the SEC, however, the CA issued a TRO, enjoining the
enforcement of the CDO.[3] In response, the SEC filed with the CA a motion to dismiss the
petition on ground of forum shopping. In a Resolution,[4] the CA initially dismissed the petition,
finding PCI guilty of forum shopping. But on PCIs motion, the CA reversed itself and reinstated
the petition.[5]

In a joint resolution,[6] CA-G.R. SP 62890 was consolidated with CA-G.R. SP 64487 that raised the
To benefit from this scheme, a PCI buyer must enlist and sponsor at least two other buyers as same issues. On July 31, 2003 the CA rendered a decision, granting PCIs petition and setting
his own down-lines. These second tier of buyers could in turn build up their own down-lines. For aside the SEC-issued CDO.[7] The CA ruled that, following the Howey test, PCIs scheme did not
constitute an investment contract that needs registration pursuant to R.A. 8799, hence, this
petition.
The Issue Presented
The sole issue presented before the Court is whether or not PCIs scheme constitutes an
investment contract that requires registration under R.A. 8799.
The Ruling of the Court
The Securities Regulation Code treats investment contracts as securities that have to be
registered with the SEC before they can be distributed and sold. An investment contract is a
contract, transaction, or scheme where a person invests his money in a common enterprise and
is led to expect profits primarily from the efforts of others.[8]
Apart from the definition, which the Implementing Rules and Regulations provide, Philippine
jurisprudence has so far not done more to add to the same. Of course, the United States
Supreme Court, grappling with the problem, has on several occasions discussed the nature of
investment contracts. That courts rulings, while not binding in the Philippines, enjoy some
degree of persuasiveness insofar as they are logical and consistent with the countrys best
interests.[9]
The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey
Co.[10] that, for an investment contract to exist, the following elements, referred to as
the Howey test must concur: (1) a contract, transaction, or scheme; (2) an investment of money;
(3) investment is made in a common enterprise; (4) expectation of profits; and (5) profits arising
primarily from the efforts of others. [11] Thus, to sustain the SEC position in this case, PCIs
scheme or contract with its buyers must have all these elements.
An example that comes to mind would be the long-term commercial papers that large
companies, like San Miguel Corporation (SMC), offer to the public for raising funds that it needs
for expansion. When an investor buys these papers or securities, he invests his money, together
with others, in SMC with an expectation of profits arising from the efforts of those who manage
and operate that company. SMC has to register these commercial papers with the SEC before
offering them to investors.
Here, PCIs clients do not make such investments. They buy a product of some value to them: an
Internet website of a 15-MB capacity. The client can use this website to enable people to have
internet access to what he has to offer to them, say, some skin cream. The buyers of the website
do not invest money in PCI that it could use for running some business that would generate
profits for the investors. The price of US$234.00 is what the buyer pays for the use of the
website, a tangible asset that PCI creates, using its computer facilities and technical skills.
Actually, PCI appears to be engaged in network marketing, a scheme adopted by companies for
getting people to buy their products outside the usual retail system where products are bought
from the stores shelf. Under this scheme, adopted by most health product distributors, the
buyer can become a down-line seller. The latter earns commissions from purchases made by
new buyers whom he refers to the person who sold the product to him. The network goes down
the line where the orders to buy come.
The commissions, interest in real estate, and insurance coverage worth P50,000.00
are incentives to down-line sellers to bring in other customers. These can hardly be regarded as
profits from investment of money under the Howey test.
The CA is right in ruling that the last requisite in the Howey test is lacking in the marketing
scheme that PCI has adopted. Evidently, it is PCI that expects profit from the network marketing
of its products. PCI is correct in saying that the US$234 it gets from its clients is merely a
consideration for the sale of the websites that it provides.
WHEREFORE, the Court DENIES the petition and AFFIRMS the decision dated July 31,
2003 and the resolution dated June 18, 2004 of the Court of Appeals in CA-G.R. SP 62890.
SO ORDERED.
SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee,
v.
GLENN W. TURNER ENTERPRISES, INC., et al., Defendants-Appellants.
No. 72-2544.
United States Court of Appeals,
Ninth Circuit.
Feb. 1, 1973.
Before DUNIWAY, HUFSTEDLER, and TRASK, Circuit Judges.
DUNIWAY, Circuit Judge:
This is an appeal from an order, 348 F.Supp. 766, granting the Securities and Exchange
Commission a preliminary injunction. The injunction prohibits offering and selling by
appellants of certain of their "Adventures" and "Plans", and also any withdrawal by appellants
of funds from the assets of the corporate defendants other than in the regular course of
business. Dare To Be Great, Inc. (Dare), a Florida corporation, is a wholly owned subsidiary of
Glenn W. Turner Enterprises, Inc. The individual defendants are, or were, officers, directors,
*478 or employees of the defendant corporations. [FN1]
FN1. The district court found that defendant Sant had not been linked to these proceedings.
The trial court's findings, which are fully supported by the record, demonstrate that
defendants' scheme is a gigantic and successful fraud. The question presented is whether the
"Adventures" or "Plan" enjoined are "securities" within the meaning of the federal securities
laws. Of the five that Dare offers-Adventures I, II, III, and IV, and the $1,000 Plan-the court
held that Adventures III and IV and the $1,000 Plan are securities. We affirm.
I. The Adventures and the $1000 Plan-the facade.
The five courses offered by Dare ostensibly involve two elements. In return for his money, the
purchaser is privileged to attend seminar sessions and receives tapes, records, and other
material, all aimed at improving self- motivation and sales ability. He also receives, if he
purchases either Adventure III or IV or the $1,000 Plan, the opportunity to help to sell the
courses to others; if successful he receives part of the purchase price as his commission. There
is no doubt that this latter aspect of the purchase is in all respects the significant one.
Adventure I costs $300. The purchaser receives one portable tape recorder, twelve tape
recorded lessons, and certain written material in notebooks. He is entitled to attend a 12-16
hour group session.
Adventure II includes Adventure I, and costs $700. The purchaser receives twelve more tape
recorded lessons. He is offered approximately 80 hours of group sessions.
Adventure III includes Adventures I and II, and costs $2,000. The purchaser receives six more
tape recordings, one notebook of written material called "The Fun of Selling," and a limited
amount of written instructions and material, as well as thirty more hours of group sessions.
The purchaser also receives a different sort of benefit. After fulfilling a few nominal
requirements he becomes an "independent sales trainee," empowered to sell the Adventures.
He receives $100 for each Adventure I, $300 for each Adventure II, and $900 for each
Adventure III that he sells.
Adventure IV costs $5,000, and includes Adventures I, II and III. The purchaser receives six
more tapes, the opportunity for thirty more hours of group sessions, the opportunity to
attend two other week-long courses in Florida, at his own expense, and he may or may not
receive a movie projector with six cartridge-type films. He also is now empowered to sell all of
the Adventures to others. For selling Adventure IV he gets $2,500.
Finally, there is the $1,000 Plan. For this sum the purchaser receives the tape cassettes sold in
Adventure II, but not the accompanying written material. He also receives some additional
sales instruction, and may be entitled to a 24-hour group session. He may also sell the Plan, if
he brings two individuals to the person who sold him the Plan, and if these two also purchase
the Plan from the first seller. If that occurs, he may then sell the Plan on his own, receiving
$400 for each additional sale that he makes. If one brings three people into the scheme, he
may sell the $1,000 Plan without buying it himself, and would earn the same $400 commission
for each additional sale that he makes.
II. The Adventures and the Plan in operation.
It is apparent from the record that what is sold is not of the usual "business motivation" type
of courses. Rather, the purchaser is really buying the possibility of deriving money from the
sale of the plans by Dare to individuals whom the purchaser has brought to Dare. The
promotional aspects of the plan, such as seminars, films, and records, are aimed at interesting
others *479 in the Plans. Their value for any other purpose, is, to put it mildly, minimal.
Once an individual has purchased a Plan, he turns his efforts toward bringing others into the
organization, for which he will receive a part of what they pay. His task is to bring prospective
purchasers to "Adventure Meetings."
A. The meetings.
These meetings are like an old time revival meeting, but directed toward the joys of making In a scheme such as this, the possibility that a market will become "saturated" is a real one.
easy money rather than salvation. Their purpose is to convince prospective purchasers, or Saturation has in fact occurred in some markets, but this is not mentioned at the meetings.
"prospects," that Dare is a sure route to great riches. At the meetings are employees, officers, Few, if any, purchasers of these plans have achieved any success remotely approaching *480
and speakers from Dare, as well as purchasers (now "salesmen") and their prospects. The Dare that described by defendants and their agents.
people, not the purchaser-"salesmen", run the meetings and do the selling. They exude great
enthusiasm, cheering and chanting; there is exuberant handshaking, standing on chairs, B. The role of the purchaser-salesman.
shouting, and "money-humming". [FN2] The Dare people dress in expensive, modern clothes;
Once he has bought a plan that empowers him to help sell the plans to others, the task of the
they display large sums of cash, flaunting it to those present, and even at times throwing it
purchaser is to find prospects and induce them to attend Adventure Meetings. He is not to tell
about; they drive new and expensive automobiles, which are conspicuously parked in large
them that Dare To Be Great, Inc. is involved. Rather, he catches their interest by intimating
numbers outside the meeting place. Dare speakers describe, usually in a frenzied manner, the
that the result of attendance will be significant wealth for the prospect. It is at the meetings
wealth that awaits the prospects if they will purchase one of the plans. Films are shown,
that the sales effort takes place. The "salesman" is also told that to maximize his chances of
usually involving the "rags-to-riches" story of Dare founder Glenn W. Turner. The goal of all of
success he should impart an aura of affluence, whether spurious or not-to pretend that
this is to persuade the prospect to purchase a plan, especially Adventure IV, so that he may
through his association with Dare he has obtained wealth of no small proportions. The training
become a "salesman", and thus grow wealthy as part of the Dare organization. It is intimated
that he has received at Dare is aimed at educating him on this point. He is told to "fake it 'til
that as Glenn W. Turner Enterprises, Inc. expands, high positions in the organization, as well as
you make it," or to give the impression of wealth even if it has not been attained. He is urged
lucrative opportunities to purchase stock, will be available. After the meeting, pressure is
to go into debt if necessary to purchase a new and expensive automobile and flashy clothes,
applied to the prospect by Dare people, in an effort to induce him to purchase one of the
and to carry with him large sums of money, borrowing if necessary, so that it can be
Adventures or the plan. The sale is sometimes closed by the purchaser who brought the
ostentatiously displayed. The purpose of all this is to put the prospect in a more receptive
prospect to the meeting, but primarily, by Dare salesmen, specialists in the "hard sell." [FN3]
state of mind with respect to the inducements that he will be subject to at the meetings.
FN2. Although mention of "money-humming" is made at several points in the record, we are
III. The Adventures and Plans as Securities.
not certain what this activity entails, nor do we venture to guess.
The district court held that Adventures III and IV, and the $1,000 Plan were securities under
FN3. On at least some occasions prospects are told to acquire the necessary money through
the Securities Act of 1933, 15 U.S.C. § 77a et seq. and the Securities Exchange Act of 1934, 15
bank loans, by not being candid about the purpose of the loan, and by making simultaneous
U.S.C. § 78a et seq. The definitions of security that are found in each Act are almost identical.
applications to a number of banks without informing each bank that more than one
[FN4] Both definitions include the terms "investment contract," "certificate of interest or
application is being made.
participation in any profit-sharing agreement," and any "instrument commonly known as a
The format of the meeting is preordained. A script created by Dare is strictly adhered to. The 'security'." The district court held that the plans in question fell into all three categories of
format applies even to the sale, there being a standard procedure for inducing the prospect to securities. Because we find them to be investment contracts, we need not decide whether the
sign his name to the agreement and to part with his money. While no express guarantee of other definitions are applicable as well.
success is made at the meetings, and the statement is made that the purchaser must expect
FN4. The Securities Act of 1933 defines "security" as:
to work, the impression which is fostered is of the near inevitability of success to be achieved
by anyone who purchases a plan and follows Dare's instructions.
". . . any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of
interest or participation in any profit- sharing agreement, collateral-trust certificate,
Dare also arranges, in addition to the Adventure Meetings, "GO Tours," or "Golden
preorganization certificate or subscription, transferable share, investment contract, voting-
Opportunity Tours." Prospects are taken by plane or bus to one of Dare's regional centers
trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or
where further meetings and sales efforts are undertaken. A significant effort is made during
other mineral rights, or, in general, any interest or instrument commonly known as a
the trip itself to sell the plans to prospects. Much the same atmosphere as at the meetings
'security', or any certificate of interest or participation in, temporary or interim certificate for,
pervades the trip-exuberant shouting, chanting, handshaking, relating of success stories, and
receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the
lavish displays of cash.
foregoing." 15 U.S.C. § 77b(1).

The Securities Exchange Act of 1934 defines "security" as:

". . . any note, stock, treasury stock, bond, debenture, certificate of interest or participation in
any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any
collateral-trust certificate, preorganization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of deposit, for a security, or in general,
any instrument commonly known as a 'security' or any certificate of interest or participation
in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to any
purchase, any of the foregoing; but shall not include currency or any note, draft, bill of
exchange, or banker's acceptance which has a maturity at the time of issuance of not
exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of
which is likewise limited." 15 U.S.C. § 78c(a)(10).
[1][2] The 1933 and 1934 Acts are remedial legislation, among the central purposes of which is
full and fair disclosure relative to the issuance of securities, SEC v. W. J. Howey Co., 1945, 328
U.S. 293, 299, 66 S.Ct. 1100, 90 L.Ed. 1244; Tcherepnin v. Knight, 1967, 389 U.S. 322, 337, 88
S.Ct. 548, 19 L.Ed.2d 564. It is a familiar canon of legislative construction that remedial
legislation should be construed broadly, Tcherepnin *481 v. Knight, supra, 389 U.S. at 337, 88
S.Ct. 548. The Acts were designed to protect the American public from speculative or
fraudulent schemes of promoters. [FN5] For that reason Congress defined the term "security"
broadly, and the Supreme Court in turn has construed the definition liberally. In SEC v. Joiner
Corp., 1943, 320 U.S. 344, 64 S.Ct. 120, 88 L.Ed. 88, the Court stated: "However, the reach of
the Act does not stop with the obvious and commonplace. Novel, uncommon, or irregular
devices, whatever they appear to be, are also reached if it be proved as matter of fact that
they were widely offered or dealt in under terms or courses of dealing which established their
character in commerce as 'investment contracts,' or as 'any interest or instrument commonly
known as a "security"'." 320 U.S., Id. at 351, 64 S.Ct. at 123. In SEC v. W. J. Howey Co., supra,
the Court stated that the definition of a security "embodies a flexible rather than a static
principle, one that is capable of adaptation to meet the countless and variable schemes
devised by those who seek the use of the money of others on the promise of profits." [FN6]
328 U.S. Id. at 299, 66 S.Ct. at 1103. And in the recent case of Tcherepnin v. Knight, supra, the
Court stated, "[I]n searching for the meaning and scope of the word 'security' in the Act, form
should be disregarded for substance and the emphasis should be on economic reality." Id. at
336, 88 S.Ct. at 553. We approach the definition of a "security" with these admonitions in
mind.
FN6. A sample listing of cases in which diverse schemes have been held to involve securities
includes: Continental Marketing Corp. v. SEC, 10 Cir., 1967, 387 F.2d 466, cert. denied, 1968,
391 U.S. 905, 88 S.Ct. 1655, 20 L.Ed.2d 419 (beavers); Roe v. United States, 5 Cir., 1961, 287
F.2d 435, cert. denied, 368 U.S. 824, 82 S.Ct. 43, 7 L.Ed.2d 29 (mineral leases); Los Angeles
Trust Deed & Mortgage Exch. v. SEC, 9 Cir., 1961, 285 F.2d 162, cert. denied, 366 U.S. 919, 81
S.Ct. 1095, 6 L.Ed.2d 241 (mortgages and deeds of trust); Penfield Co. of California v. SEC, 9
Cir., 1944, 143 F.2d 746, cert. denied, 323 U.S. 768, 65 S.Ct. 121, 89 L.Ed. 614 (whiskey sales
contracts); SEC v. Crude Oil Corp. of America, 7 Cir., 1937, 93 F.2d 844 (crude oil sales
contracts).
In SEC v. W. J. Howey Co., supra, the Supreme Court set out its by now familiar definition of an
investment contract:
"The test is whether the scheme involves an investment of money in a common enterprise
with profits to come solely from the efforts of others." Id. at 301, 66 S.Ct. at 1104.
In Howey the Court held that a land sales contract for units of a citrus grove, together with a
service contract for cultivating and marketing the crops, was an investment contract and
hence a security. The Court held that what was in essence being offered was "an opportunity
to contribute money and to share in the profits of a large citrus fruit enterprise managed and
partly owned by respondents." Id. at 299, 66 S.Ct. at 1103. The purchasers had no intention
themselves of either occupying the land or developing it; they were attracted only "by the
prospects of a return on their investment." Id. at 300, 66 S.Ct. at 1103. It was clear that the
profits were to come "solely" from the efforts of others.
For purposes of the present case, the sticking point in the Howey definition is the word
"solely," a qualification which of course exactly fitted the circumstances in Howey. All the
other elements of the Howey test have been met here. There is an investment of money, *482
a common enterprise, [FN7] and the expectation of profits to come from the efforts of others.
Here, however, the investor, or purchaser, must himself exert some efforts if he is to realize a
return on his initial cash outlay. He must find prospects and persuade them to attend Dare
Adventure Meetings, and at least some of them must then purchase a plan if he is to realize
that return. Thus it can be said that the returns or profits are not coming "solely" from the
efforts of others.

FN5. The broad purpose of the Securities Act of 1933 was stated in the report of the Senate
FN7. A common enterprise is one in which the fortunes of the investor are interwoven with
Committee on Banking and Currency, S.Rep. No. 47, 73d Cong., 1st Sess. 1 (1933):
and dependent upon the efforts and success of those seeking the investment or of third
parties. See, e. g., Los Angeles Trust Deed & Mortgage Exch. v. SEC, 9 Cir., 1961, 285 F.2d 162,
"The aim is to prevent further exploitation of the public by the sale of unsound, fraudulent,
172, cert. denied, 366 U.S. 919, 81 S.Ct. 1095, 6 L.Ed.2d 241.
and worthless securities through misrepresentation; to place adequate and true information
before the investor; to protect honest enterprise, seeking capital by honest presentation,
[3][4] We hold, however, that in light of the remedial nature of the legislation, the statutory
against the competition afforded by dishonest securities offered to the public through
policy of affording broad protection to the public, and the Supreme Court's admonitions that
crooked promotion; . . . ."
the definition of securities should be a flexible one, the word "solely" should not be read as a
strict or literal limitation on the definition of an investment contract, but rather must be
construed realistically, so as to include within the definition those schemes which involve in
substance, if not form, securities. Within this context, we hold that Adventures III and IV, and
the $1,000 Plan, are investment contracts within the meaning of the 1933 and 1934 Acts.
[FN8]
FN8. We note that under the laws of three states defendants' promotions have been held to
be securities: Hurst v. Dare To Be Great, Inc., D.Ore. (Civ.No. 71-160, Jan. 12, 1972); State of
Idaho v. Glenn Turner Enterprises, Inc., Dist.Ct. 4th Jud. Dist.Ida. (Civ. No. 47773, March 28,
1972); Frye v. Taylor, Dist. Ct. of Appeal, 4th Dist. Fla., 1972, 263 So.2d 835.
Strict interpretation of the requirement that profits to be earned must come "solely" from the
efforts of others has been subject to criticism. See, e. g., State of Hawaii v. Hawaii Market
Center, Haw.1971, 485 P.2d 105. Adherence to such an interpretation could result in a
mechanical, unduly restrictive view of what is and what is not an investment contract. [FN9] It
would be easy to evade by adding a requirement that the buyer contribute a modicum of
effort. Thus the fact that the investors here were required to exert some efforts if a return
were to be achieved should not automatically preclude a finding that the Plan or Adventure is
an investment contract. To do so would not serve the purpose of the legislation. Rather we
adopt a more realistic test, whether the efforts made by those other than the investor are the
undeniably significant ones, those essential managerial efforts which affect the failure or
success of the enterprise.
the trees and harvesting and marketing the crop. We cannot believe that the Court would not
have held such a scheme to be an investment contract. So here. Regardless of the fact that
the purchaser here must contribute something besides his money, the essential managerial
efforts which affect the failure or success of the enterprise are those of Dare, not his own.
Our holding in this case represents no major attempt to redefine the essential nature of a
security. [FN10] Nor does our holding represent any real departure from the Supreme Court's
definition of an investment contract as set out in Howey. We hold only that the requirement
that profits come "solely" from the efforts of others would, in circumstances such as these,
lead to unrealistic results if applied dogmatically, and that a more flexible approach is
appropriate.
FN10. See Coffey, The Economic Realities of a "Security": Is There a More Meaningful
Formula?, 18 W.Res.L.Rev. 367 (1967) wherein Professor Coffey proposes new guidelines for
determining the existence of a security.
Affirmed.

FN9. See, e. g., Georgia Market Centers, Inc. v. Fortson, 1969, 225 Ga. 854, 171 S.E. 2d 620;
Gallion v. Alabama Market Centers, Inc., 1968, 282 Ala. 679, 213 So.2d 841. Compare State of
Hawaii v. Hawaii Market Center, 1971, 485 P.2d 105.

In this case, Dare's source of income is from selling the Adventures and the Plan. The
purchaser is sold the idea that he will get a fixed part of the proceeds of the sales. In essence,
to get that share, he invests three things: his money, his efforts to find prospects and bring
them to the meetings, and whatever it costs him to create an illusion of his own affluence. He
invests them in Dare's get-rich-quick scheme. What he buys is a share in the proceeds of the
selling efforts of Dare. Those efforts are the sine qua non of the scheme; those efforts are
what keeps it going; those efforts are what produces the money which is to make him rich. In
essence, it is the right to share in the proceeds of those efforts that he buys. In our view, the
scheme is no less an investment contract merely because he contributes some effort as well
as money to get into it.

Let us assume that in Howey, supra, the sales and service agreements had provided that the
buyer was to buy and plant the citrus trees. Unless he did so, there would be no crop to
cultivate, harvest *483 and sell, no moneys in which he could share. The essential nature of
the scheme, however, would be the same. He would still be buying, in exchange for money,
trees and planting, a share in what he hoped would be the company's success in cultivating
 United States Supreme Court less than 5 acres each. The average holding of these 31 persons was 1.33 acres and sales of as
SECURITIES AND EXCHANGE COMMISSION v. W. J. HOWEY CO., (1946) little as 0.65, 0.7 and 0.73 of an acre were made. These tracts are not separately fenced and
the sole indication of several ownership is found in small land marks intelligible only through a
No. 843 plat book record. [328 U.S. 293, 296] The service contract, generally of a 10-year duration
Argued: May 2, 1946 Decided: May 27, 1946 without option of cancellation, gives Howey-in-the-Hills Service, Inc., a leasehold interest and
Rehearing Denied Oct. 14, 1946 'full and complete' possession of the acreage. For a specified fee plus the cost of labor and
materials, the company is given full discretion and authority over the cultivation of the groves
See 67 S.Ct. 27. [328 U.S. 293, 294] Mr. Roger S. Foster, of Philadelphia, Pa., for petitioner. and the harvest and marketing of the crops. The company is well established in the citrus
business and maintains a large force of skilled personnel and a great deal of equipment,
including 75 tractors, sprayer wagons, fertilizer trucks and the like. Without the consent of the
Messrs. C. E. Duncan, of Tavares, Fla., and George C. Bedell, of Jacksonville, Fla., for
respondents. company, the land owner or purchaser has no right of entry to market the crop;2 thus there is
ordinarily no right to specific fruit. The company is accountable only for an allocation of the
net profits based upon a check made at the time of picking. All the produce is pooled by the
Mr. Justice MURPHY delivered the opinion of the Court.
respondent companies, which do business under their own names.
This case involves the application of 2(1) of the Securities Act of 19331 to an offering of units
The purchasers for the most part are non-residents of Florida. They are predominantly
of a citrus grove development coupled with a contract for cultivating, marketing and remitting
business and professional people who lack the knowledge, skill and equipment necessary for
the net proceeds to the investor.
the care and cultivation of citrus trees. They are attracted by the expectation of substantial
profits. It was represented, for example, that profits during the 1943-1944 season amounted
The Securities and Exchange Commission instituted this action to restrain the respondents
to 20% and that even greater profits might be expected during the 1944-1945 season,
from using the mails and instrumentalities of interstate commerce in the offer and sale of
although only a 10% annual return was to be expected over a 10-year period. Many of these
unregistered and nonexempt securities in violation of 5(a) of the Act, 15 U.S.C.A. 77e(a). The
purchasers are patrons of a resort hotel owned and operated by the Howey Company in a
District Court denied the injunction, 60 F.Supp. 440, and the Fifth Circuit Court of Appeals
scenic section adjacent to the groves. The hotel's advertising mentions the fine groves in the
affirmed the judgment, 151 F.2d 714. We granted certiorari,327 U.S. 773 , 66 S.Ct. 821, on a
vicinity and the attention of the patrons is drawn to the [328 U.S. 293, 297] groves as they
petition alleging that the ruling of the Circuit Court of Appeals conflicted with other federal
are being escorted about the surrounding countryside. They are told that the groves are for
and state decisions and that it introduced a novel and unwarranted test under the statute
sale; if they indicate an interest in the matter they are then given a sales talk.
which the Commission regarded as administratively impractical.
It is admitted that the mails and instrumentalities of interstate commerce are used in the sale
Most of the facts are stipulated. The respondents, W. J. Howey Company and Howey-in-the-
of the land and service contracts and that no registration statement or letter of notification
Hills Service [328 U.S. 293, 295] Inc., are Florida corporations under direct common control
has ever been filed with the Commissioni n accordance with the Securities Act of 1933 and the
and management. The Howey Company owns large tracts of citrus acreage in Lake County,
rules and regulations thereunder.
Florida. Duringt he past several years it has planted about 500 acres annually, keeping half of
the groves itself and offering the other half to the public 'to help us finance additional
Section 2(1) of the Act defines the term 'security' to include the commonly known documents
development.' Howey-in-the-Hills Service, Inc., is a service company engaged in cultivating and
traded for speculation or investment. 3 This definition also includes 'securities' of a more
developing many of these groves, including the harvesting and marketing of the crops.
variable character, designated by such descriptive terms as 'certificate of interest or
participation in any profit-sharing agreement,' 'investment contract' and 'in general, any
Each prospective customer is offered both a land sales contract and a service contract, after
interest or instrument commonly known as a 'security." The legal issue in this case turns upon
having been told that it is not feasible to invest in a grove unless service arrangements are
a determination of whether, under the circumstances, the land sales contract, the warranty
made. While the purchaser is free to make arrangements with other service companies, the
deed and the service contract together constitute an 'investment contract' within the meaning
superiority of Howey-in-the-Hills Service, Inc., is stressed. Indeed, 85% of the acreage sold
of 2(1). An affirmative answer brings into operation the registration requirements of 5(a),
during the 3-year period ending May 31, 1943, was covered by service contracts with Howey-
unless the security is granted an exemption under 3(b), 15 U.S.C.A. 77c(b). The lower courts,
in-the-Hills Service, Inc.
in reaching a negative answer to this problem, treated the contracts and deeds [328 U.S. 293,
298] as separate transactions involving no more than an ordinary real estate sale and an
The land sales contract with the Howey Company provides for a uniform purchase price per
agreement by the seller to manage the property for the buyer.
acre or fraction thereof, varying in amount only in accordance with the number of years the
particular plot has been planted with citrus trees. Upon full payment of the purchase price the
The term 'investment contract' is undefined by the Securities Act or by relevant legislative
land is conveyed to the purchaser by warranty deed. Purchases are usually made in narrow
reports. But the term was common in many state 'blue sky' laws in existence prior to the
strips of land arranged so that an acre consists of a row of 48 trees. During the period
adoption of the federal statute and, although the term was also undefined by the state laws, it
between February 1, 1941, and May 31, 1943, 31 of the 42 persons making purchases bought
had been broadly construed by state courts so as to afford the investing public a full measure
of protection. Form was disregarded for substance and emphasis was placed upon economic
reality. An investment contract thus came to mean a contract or scheme for 'the placing of
capital or laying out of money in a way intended to secure income or profit from its
employment.' State v. Gopher Tire & Rubber Co., 146 Minn. 52, 56, 177 N.W. 937, 938. This
definition was uniformly applied by state courts to a variety of situations where individuals
were led to invest money in a common enterprise with the expectation that they would earn a
profit solely through the efforts of the promoter or of some one other than themselves. 4
By including an investment contract within the scope of 2(1) of the Securities Act, Congress
was using a term the meaning of which had been crystallized by this prior judicial
interpretation. It is therefore reasonable to attach that meaning to the term as used by
Congress, especially since such a definition is consistent with the statutory aims. In other
words, an investment contract for purposes of the Securities Act means a contract, trans- [328
U.S. 293, 299] action or scheme whereby a person invests his money in a common enterprise
and is led to expect profits solely from the efforts of the promoter or a third party, it being
immaterial whether the shares in the enterprise are evidenced by formal certificates or by
nominal interests in the physical as ets employed in the enterprise. Such a definition
necessarily underlies this Court's decision in Securities Exch. Commission v. C. M. Joiner
Leasing Corp., 320 U.S. 344 , 64 S.Ct. 120, and has been enunciated and applied many times by
lower federal courts. 5 It permits the fulfillment of the statutory purpose of compelling full
and fair disclosure relative to the issuance of 'the many types of instruments that in our
commercial world fall within the ordinary concept of a security.' H. Rep.No.85, 73rd Cong., 1st
Sess., p. 11. It embodies a flexible rather than a static principle, one that is capable of
adaptation to meet the countless and variable schemes devised by those who seek the use of
the money of others on the promise of profits.
The transactions in this case clearly involve investment contracts as so defined. The
respondent companies are offering something more than fee simple interests in land,
something different from a farm or orchard coupled with management services. They are
offering an opportunity to contribute money and to share in the profits of a large citrus fruit
enterprise managed and partly owned by respondents. They are offering this opportunity to
persons who reside in distant localities and who lack the equip- [328 U.S. 293, 300] ment and
experience requisite to the cultivation, harvesting and marketing of the citrus products. Such
persons have no desire to occupy the land or to develop it themselves; they are attracted
solely by the prospects of a return on their investment. Indeed, individual development of the
plots of land that are offered and sold would seldom be economically feasible due to their
small size. Such tracts gain utility as citrus groves only when cultivated and developed as
component parts of a larger area. A common enterprise managed by respondents or third
parties with adequate personnel and equipment is therefore essential if the investors are to
achieve their paramount aim of a return on their investments. Their respective shares in this
enterprise are evidenced by land sales contracts and warranty deeds, which serve as a
convenient method of determining the investors' allocable shares of the profits. The resulting
transfer of rights in land is purely incidental.
Thus all the elements of a profit-seeking business venture are present here. The investors
provide the capital and share in the earnings and profits; the promoters manage, control and
operate the enterprise. It follows that the arrangements whereby the investors' interests are
made manifest involve investment contracts, regardless of the legal terminology in which such
contracts are clothed. The investment contracts in this instance take the form of land sales
contracts, warranty deeds and service contracts which respondents offer to prospective
investors. And respondents' failure to abide by the statutory and administrative rules in
making such offerings, even though the failure result from a bona fide mistake as to the law,
cannot be sanctioned under the Act.
This conclusion is unaffected by the fact that some purchasers choose not to accept the full
offer of an investment contract by declining to enter into a service contract with [328 U.S.
293, 301] the respondents. The Securities Act prohibits the offer as well as the sale of
unregistered, non-exempt securities. 6 Hence it is enough that the respondents merely offer
the essential ingredients f an investment contract.
We reject the suggestion of the Circuit Court of Appeals, 151 F.2d at page 717, that an
investment contract is necessarily missing where the enterprise is not speculative or
promotional in character and where the tangible interest which is sold has intrinsic value
independent of the success of the enterprise as a whole. The test is whether the scheme
involves an investment of money in a common enterprise with profits to come solely from the
efforts of others. If that test be satisfied, it is immaterial whether the enterprise is speculative
or non-speculative or whether there is a sale of property with or without intrinsic value. See S.
E.C. v. C. M. Joiner Leasing Corp., supra, 320 U.S. 352 , 64 S.Ct. 124. The statutory policy of
affording broad protection to investors is not to be thwarted by unrealistic and irrelevant
formulae.
REVERSED.
Mr. Justice JACKSON took no part in the consideration or decision of this case.
Mr. Justice FRANKFURTER dissenting.
'Investment contract' is not a term of art; it is conception dependent upon the circumstances
of a particular situation. If this case came before us on a finding authorized by Congress that
the facts disclosed an 'investment contract' within the general scope of 2(1) of the Securities
Act, 48 Stat. 74, 15 U.S.C. 77b(1), 15 U.S.C.A. 77b(1), the Securities and Exchange
Commission's finding would govern, unless, on the record, it was wholly unsupported.
But [328 U.S. 293, 302] that is not the case before us. Here the ascertainment of the
existence of an 'investment contract' had to be made independently by the District Court and
it found against its existence. 60 F.Supp. 440. The Circuit Court of Appeals for the Fifth Circuit
sustained that finding. 151 F.2d 714. If respect is to be paid to the wise rule of judicial
administration under which this Court does not upset concurrent findings of two lower courts
in the ascertainment of facts and the relevant inferences to be drawn from them, this case
clearly calls for its application. See Allen v. Trust Co. of Georgia, 326 U.S. 630 , 66 S.Ct. 389. For
the crucial issue in this case turns on whether the contracts for the land and the contracts for
the management of the property were in reality separate agreements or merely parts of a
single transaction. It is clear from its opinion that the District Court was warranted in its
conclusion that the record does not establish the existence of an investment contract:
'... the record in this case shows that not a single sale of citrus grove property was made by
the Howey Company during the period involved in this suit, except to purchasers who actually
inspected the property before purchasing the same. The record further discloses that no
purchaser is required to engage the Service Company to care for his property and that of the
fifty-one purchasers acquiring property during this period, only forty-two entered into
contract with the Service Company for the care of the property.' 60 F.Supp. at page 442.
Simply because other arrangements may have the appearances of this transaction but are
employed as an evasion of the Securities Act does not mean that the present contracts were
evasive. I find nothing in the Securities Act to indicate that Congress meant to bring every
innocent transaction within the scope of the Act simply because a perversion of them is
covered by the Act.

Footnotes
[ Footnote 1 ] 48 Stat. 74, 15 U.S.C. 77b(1), 15 U.S.C.A. 77b(1).

[ Footnote 2 ] Some investors visited their particular plots annually, making suggestions as to
care and cultivation, but without any legal rights in the matters.

[ Footnote 3 ] 'The term 'security' means any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit-sharing
agreement, collateral-trust certificate, preorganization certificate or subscription, transferable
share, investment contract, voting-trust certificate, certificate of deposit for a security,
fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or
instrument commonly known as a 'security,' or any certificate of interest or participation in,
temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe
to or purchase, any of the foregoing.'