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United States Securities & Exchange Commission v. Schooler

The United States Court of Appeals for the Ninth Circuit held that a general partnership which was effectively a passive investment where all vestiges of participation in management had been removed qualified as securities. Accordingly, the promoter violated the securities acts by making an unregistered offering.  

This case is a timely reminder that securities cover a wide array of instruments and structures.  


It was obvious in this particular case that it was simply passive investments that were qualified as securities.  Investors were solicited to purchase fractional interests in land.  

As stated by the Court:

The “touchstone” of this standard “is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.” United Hous. Found., Inc. v. Forman, 421 U.S. 837, 852 (1975). The standard is “flexible rather than . . . static” and “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.” Howey, 328 U.S. at 299. Accordingly, the Supreme Court’s use of the phrase “solely from the efforts of the promoter or a third party” has not been literally applied to innoculate any scheme that nominally purports to afford investors power or responsibility to advance the common enterprise.

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