Week 7 Case Study, powerpoint

1. Read and understand the case or question assigned. Show your Analysis and Reasoning and make it clear you understand the material. Be sure to incorporate the concepts of the chapter we are studying to show your reasoning. Dedicate at least one heading to each following outline topic:

Parties [Identify the plaintiff and the defendant]

Facts [Summarize only those facts critical to the outcome of the case]

Procedure [Who brought the appeal? What was the outcome in the lower court(s)?]

Issue [Note the central question or questions on which the case turns]

Explain the applicable law(s). Use the textbook here. The law should come from the same chapter as the case. Be sure to use citations from the textbook including page numbers.

Holding [How did the court resolve the issue(s)? Who won?]

Reasoning [Explain the logic that supported the court's decision]

1. Do significant research outside of the book and demonstrate that you have in a very obvious way. This refers to research beyond the legal research. This involves something about the parties or other interesting related area. Show something you have discovered about the case, parties or other important element from your own research. Be sure this is obvious and adds value beyond the legal reasoning of the case.

2. Dedicate 1 slide to each of the case question(s) immediately following the case, if there are any. Be sure to state and fully answer the questions in the presentation.

3. Quality in terms of substance, form, grammar and context. Be entertaining! Use excellent audio-visual material and backgrounds!

4. Wrap up with a Conclusion slide. This should summarize the key aspects of the decision and also your recommendations on the court's ruling.

5. Include citations on the slides and a reference slide with your sources. Use APA style citations and references.

CASE 23-1

Securities and Exchange Commission v. Edwards

Securities and Exchange Commission v. Edwards

United States Supreme Court 540 U.S. 389 (2004)

Charles Edwards, the CEO and sole shareholder of ETS Payphones, Inc., offered the public investment opportunities in payphones. The arrangement involved an investor paying $7,000 to own a payphone. Each investor was offered $82 per month under a leaseback and management arrangement with ETS. The investors also were to recoup their $7,000 investment at the end of five years. ETS did not generate enough revenue to pay its investors, so it filed for bankruptcy. The SEC sued ETS for civil damages arising from alleged violations of federal securities laws. The SEC won at the trial level. The district judge ruled that payphone leaseback and management agreements were investment contracts covered by federal securities laws. The Eleventh Circuit Court of Appeals reversed this judgment and ruled in favor of ETS. The SEC was granted certiorari to have the Supreme Court review the definition and application of the term security.

4328 U.S. 293 (1946).

5International Brotherhood of Teamsters, Chauffeurs, Warehousers, & Helpers of America v. Daniel, 439 U.S. 551 (1979).

6United Housing Foundation, Inc. v. SEC, 423 U.S. 884 (1975).

Justice O’Connor

Congress’s purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called. To that end, it enacted a broad definition of security, sufficient to encompass virtually any instrument that might be sold as an investment, investment contract is not itself defined.

The test for whether a particular scheme is an investment contract was established in our decision in SEC v. W. J. Howey Co., 66 S. Ct. 1100 (1946). We look to whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others. This definition embodies a flexible rather than a static principle, one that 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 ….

There is no reason to distinguish between promises of fixed returns and promises of variable returns for purposes of the test…. In both cases, the investing public is attracted by representations of investment income, as purchasers were in this case by ETS’s invitation to watch the profits add up. Moreover, investments pitched as low-risk (such as those offering a “guaranteed” fixed return) are particularly attractive to individuals more vulnerable to investment fraud, including older and less sophisticated investors. Under the reading respondent advances, unscrupulous marketers of investments could evade the securities laws by picking a rate of return to promise. We will not read into the securities laws a limitation not compelled by the language that would so undermine the laws’ purposes.

Respondent protests that including investment schemes promising a fixed return among investment contracts conflicts with our precedent. We disagree.

Given that respondent’s position is supported neither by the purposes of the securities laws nor by our precedents, it is no surprise that the SEC has consistently taken the opposite position, and maintained that a promise of a fixed return does not preclude a scheme from being an investment contract. It has done so in formal adjudications and in enforcement actions.

The Eleventh Circuit’s perfunctory alternative holding, that respondent’s scheme falls outside the definition because purchasers had a contractual entitlement to a return, is incorrect and inconsistent with our precedent. We are considering investment contracts. The fact that investors have bargained for a return on their investment does not mean that the return is not also expected to come solely from the efforts of others. Any other conclusion would conflict with our holding that an investment contract was offered in Howey itself.

We hold that an investment scheme promising a fixed rate of return can be an investment contract and thus a security subject to the federal securities laws.

Reversed and remanded. For the SEC.