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SEC v. Glenn W. Turner Enters., Inc. - 474 F.2d 476 (9th Cir. 1973)

Rule:

A common enterprise is one in which the fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties.

Facts:

Defendant company developed a system where a person could purchase and sell plans of the company. What the purchaser was really buying was the chance to collect a commission by bringing other purchasers to the company. Plaintiff Securities and Exchange Commission (SEC) sought a preliminary injunction prohibiting sale of certain securities in violation of the Securities Act of 1933, 15 U.S.C.S. § 77a et seq., and the Securities Exchange Act of 1934, 15 U.S.C.S. § 78a et seq., which the United States District Court for the District of Oregon granted. Defendants sought appellate review. 

Issue:

Were the plans sold by the company equivalent of investment plans and were thus subject to regulation under securities laws as securities?

Answer:

Yes

Conclusion:

The court held that the plans were investment contracts under the Securities Act of 1933, 15 U.S.C.S. § 77a et seq., and the Securities Exchange of 1934, 15 U.S.C.S. § 78a et seq. Although investors had to put some effort in getting a return, i.e. by bringing a potential purchaser to a meeting, the scheme was an investment contract because money was invested, there was a common enterprise, and the success of the enterprise was dependent upon upper management. Therefore, the appellate court affirmed.

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