SEC v. Edwards, 540 U.S. 389, 9 (2004)

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

Opinion of the Court

substance of the Howey test, " '[t]he investment of money with the expectation of profit through the efforts of other persons' "); see also SEC v. American Trailer Rentals Co., 379 U. S. 594, 598 (1965) (noting that "the SEC advised" the respondent that its "sale and lease-back arrangements," in which investors received "a set 2% of their investment per month for 10 years," "were investment contracts and therefore securities" under the 1933 Act).

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. 328 U. S., at 295-296 (service contract entitled investors to allocation of net profits).

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. The judgment of the United States Court of Appeals for the Eleventh Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.


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