Security Defined

SEC v Edwards (Sup Ct 2004) 02-1196

Investment scheme offers a fixed rate of return instead of a variable one does not mean that the scheme is not an investment contract and thus a security
Reverses 11th Circuit
rejected the contention that a payphone purchase and leaseback arrangement could not be an "investment contract" because it offered a contractual entitlement to a 14 percent annual ret
SEC brief
Petitioner's brief (SEC)
Respondent's brief

Seminal case defining security
Established the Howey test
Held that the sale and operation of orange groves was
an investment contract and thus a security per §2(a)(1)
Construes investment contract broadly
See Frankfurter dissent

Reverses 9th Circuit opinion that the sale of 100% of the stock of a closely held corporation
was not the sale of a security
9th Circuit reasoned the buyer was getting a business
he would actively manage and was not making an "investment" in the traditional sense
Supreme Court disagreed
Stock is specifically listed in Section 2(1)

Notes and debt participations

Pensions and employee benefit plans

Partnership and joint venture interests

Franchises, pyramid sale programs

Subdivided interests in oil and gas and other minerals

Discretionary securities and commodity trading accounts

Sales of stock in connection with a sale of a business

Real estate leaseholds

Housing co-operatives

Cattle feeding and breeding programs