United States Supreme Court Cases & Opinions

U.S. Supreme Court

SEC v. Howey Co., 328 U.S. 293 (1946)

Securities and Exchange Commission v. Howey Co.

No. 843

Argued May 2, 1946

Decided May 27, 1946

328 U.S. 293

Syllabus

1. Upon the facts of this case, an offering of units of a citrus grove development, coupled with a contract for cultivating, marketing, and remitting the net proceeds to the investor, was an offering of an "investment contract" within the meaning of that term as used in the provision of § 2(1) of the Securities Act of 1933 defining "security" as including any "investment contract," and was therefore subject to the registration requirements of the Act. Pp. 328 U. S. 294-297, 328 U. S. 299.

2. For purposes of the Securities Act, an investment contract (undefined by the Act) 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. Pp. 328 U. S. 298-299.

3. The fact that some purchasers, by declining to enter into the service contract, chose not to accept the offer of the investment contract in its entirety does not require a different result, since the Securities Act prohibits the offer, as well as the sale, of unregistered nonexempt securities. P. 328 U. S. 300.

4. The test of whether there is an "investment contract" under the Securities Act is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others; and, if that test be satisfied, it is immaterial whether the enterprise is speculative or nonspeculative, or whether there is a sale of property with or without intrinsic value. P. 328 U. S. 301.

5. The policy of the Securities Act of affording broad protection to investors is not to be thwarted by unrealistic and irrelevant formulae. P. 328 U. S. 301.

151 F.2d 714 reversed.

The Securities & Exchange Commission sued in the District Court to enjoin respondents from using the mails and instrumentalities of interstate commerce in the offer

Page 328 U. S. 294

and sale of unregistered and nonexempt securities in violation of the Securities Act of 1933. The District Court denied the injunction. 60 F.Supp. 440. The Circuit Court of Appeals affirmed. 151 F.2d 714. This Court granted certiorari. 327 U.S. 773. Reversed, p. 328 U. S. 301.