Question

Please explain what happen in the court case of SEC vs. W.J. Howey

Answer 1

SEC vs W.J. Howey case: Some key points:
1. W.J. Howey owned groves of citrus fruit spread over a large area. They started issuing securities in the form of providing groves of citrus cultivation to investors.
2. The investors has to provide labour and would receive income from the allocated grove of citrus fruits.
3. However marketing and distribution of citrus fruits were undertaken by W.J. Howey case and they had not registered under the SEC
4. The company had entered into interstate commerce and sale of land.
5. The SEC sought injunction against such allocation to investors.

The US Supreme Court gave a definition which helped to identify whether a service contract or instrument qualifies as investment contract or not. It defined that the interstate commerce and land sale comes under investment contract and hence should be approved and regulated by SEC.

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