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SEC v. W. J. Howey Co.

Facts of the Case

Provided by Justia

This case involves the application of § 2(1) of the Securities Act of 1933 [ Footnote 1 ] to an offering of units of a citrus grove development, coupled with a contract for cultivating, marketing and remitting the net proceeds to the investor. The Securities and Exchange Commission instituted this action to restrain the respondents from using the mails and instrumentalities of interstate commerce in the offer and sale of unregistered and nonexempt securities in violation of § 5(a) of the Act. The District Court denied the injunction, 60 F. Supp. 440 , and the Fifth Circuit Court of Appeals affirmed the judgment, 151 F.2d 714. We granted certiorari, 327 U.S. 773, on a petition alleging that the ruling of the Circuit Court of Appeals conflicted with other federal and state decisions, and that it introduced a novel and unwarranted test under the statute which the Commission regarded as administratively impractical.

Conclusions

  1. 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.