In Howey, the Supreme Court defined an “investment contract” as 1) individuals led to invest money, 2) in a common enterprise, and 3) having the expectation that they would earn a profit solely from the efforts of others. Specifically, the court found the third Howey factor in dispute.
In Williamson v. Tucker, the Supreme Court empathized that economic reality is to govern over form and the definitions of securities should not be determined based on precise or literal tests. If it is found that the joint venture is one in which the general partners are “so dependent on a particular manager that they cannot replace him or otherwise exercise ultimate control,” then the third Howey factor is established.
Specifically, in Williamson, the Supreme Court considered the following non-exclusive factors in determining whether the aforementioned type of dependence existed: 1) An agreement among the …show more content…
In Long v. Shultz Cattle Co., the Fifth Circuit held that “a plaintiff may establish reliance on others within the meaning of Howey if he can demonstrate not simply that he did not exercise the power he possessed, but he was incapable of doing so.” The SEC presented evidence that the venturers had little to no experience in the oil and gas business by establishing that the Parvizian Defendants marketed to potential joint venturers through hundreds of daily unsolicited cold calls to thousands of potential investors whose information was culled from a “leads list.” Furthermore, in SEC v. Shields, the Tenth Circuit has stated that marketing “oil and gas interests nationwide to investors with little, if