SEC v. Howey Co., 328 U.S. 293 (1946)
An investment contract for purposes of the Securities Act of 1933 means a
contract, transaction, 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 assets employed in the enterprise.The Court reviewed the record, which indicated that respondents, two
corporations under direct common control and management, had engaged in
transactions which constituted investment contracts within the meaning of the
Act, 15 U.S.C.S. § 77b(1). An investment contract, for purposes of the
Act, meant a contract, transaction, or scheme whereby a person invested his
money in a common enterprise and was led to expect profits solely from the
efforts of the promoter or a third party. It was immaterial whether the shares
in the enterprise were evidenced by formal certificates or by nominal
interests in the physical assets employed in the enterprise. In the case
before the Court, all the elements of a profit-seeking business venture were
present. Investors provided the capital and shared in the earnings and
profits; respondents managed, controlled, and operated the enterprise. Because
respondents failed to abide by the statutory and administrative rules in
making their offerings, they violated the Act. (READ
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