SEC v. Edwards, 540 U.S. 389, 3 (2004)

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Cite as: 540 U. S. 389 (2004)

Opinion of the Court

Justice O'Connor delivered the opinion of the Court.

"Opportunity doesn't always knock . . . sometimes it rings." App. 113 (ETS Payphones promotional brochure). And sometimes it hangs up. So it did for the 10,000 people who invested a total of $300 million in the payphone sale-and-leaseback arrangements touted by respondent under that slogan. The Securities and Exchange Commission (SEC) argues that the arrangements were investment contracts, and thus were subject to regulation under the federal securities laws. In this case, we must decide whether a moneymaking scheme is excluded from the term "investment contract" simply because the scheme offered a contractual entitlement to a fixed, rather than a variable, return.


Respondent Charles Edwards was the chairman, chief executive officer, and sole shareholder of ETS Payphones, Inc. (ETS).† ETS, acting partly through a subsidiary also controlled by respondent, sold payphones to the public via independent distributors. The payphones were offered packaged with a site lease, a 5-year leaseback and management agreement, and a buyback agreement. All but a tiny fraction of purchasers chose this package, although other management options were offered. The purchase price for the payphone packages was approximately $7,000. Under the leaseback and management agreement, purchasers received $82 per month, a 14% annual return. Purchasers were not involved in the day-to-day operation of the payphones they owned. ETS selected the site for the phone, installed the

for the Public Investors Arbitration Bar Association, Inc., by Joseph C. Long; and for Securities Regulators for the State of Florida et al. by Cynthia K. Maynard.

†Because the Court of Appeals ordered the complaint dismissed, we treat the case as we would an appeal from a successful motion to dismiss and accept as true the allegations in the complaint. SEC v. Zandford, 535 U. S. 813, 818 (2002); Saudi Arabia v. Nelson, 507 U. S. 349, 351, 354 (1993).


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