SEC v. Edwards, 540 U.S. 389, 7 (2004)

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

Opinion of the Court

vestments 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. No distinction between fixed and variable returns was drawn in the blue sky law cases that the Howey Court used, in formulating the test, as its evidence of Congress' understanding of the term. 328 U. S., at 298, and n. 4. Indeed, two of those cases involved an investment contract in which a fixed return was promised. People v. White, 124 Cal. App. 548, 550-551, 12 P. 2d 1078, 1079 (1932) (agreement between defendant and investors stated that investor would give defendant $5,000, and would receive $7,500 from defendant one year later); Stevens v. Liberty Packing Corp., 111 N. J. Eq. 61, 62-63, 161 A. 193, 193-194 (1932) ("ironclad contract" offered by defendant to investors entitled investors to $56 per year for 10 years on initial investment of $175, ostensibly in sale and leaseback of breeding rabbits).

None of our post-Howey decisions is to the contrary. In United Housing Foundation, Inc. v. Forman, 421 U. S. 837 (1975), we considered whether "shares" in a nonprofit housing cooperative were investment contracts under the securities laws. We identified the "touchstone" of an investment contract as "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," and then laid out two examples of investor interests that we had previously found to be "profits." Id., at 852. Those were "capital appreciation resulting from the development of the initial investment" and "participation in earnings resulting from the use of investors' funds." Ibid. We contrasted those examples, in which "the investor is 'attracted solely by the prospects of a return' " on the investment, with


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