What is a security? Flashcards
under the ‘33 and ‘34 acts, what is included w/ “any instrument commonly known as a security”?
an investment contract
T/F: under the ‘33 and ‘34 act, an investment contract falls w/in the definition of a security
true
why is it important to determine whether something falls w/in the definition of a security?
b/c if it is a security, federal securities acts apply and a company must register w/ the SEC and comply w/ periodic reporting requirements
which case provided the framework for deciding whether something was an investment contract or not?
WJ Howey
What happened in the Forman Case?
company sold “stock” so that people who bought enough could live in apartment co-op
was the “stock” in Forman held to be an investment contract (t/f a security)
no b/c it was for consumption
what does the Forman case determine?
whether a transaction is for consumption or investment?
if a transaction is for consumption, is it more or less likely to be classified as a security?
less
Forman definition of investment
where one parts w/ his money in the hope of receiving profits from the efforts of others
what 2 tests determine whether an investment is a “common enterprise” under Howey test?
- horizontal commonality
2. vertical commonality
what are the 2 types of vertical commonality?
- broad
2. strict
which type of commonality applies when multiple investors have inter-related interests?
horizontal commonality
which type of commonality is it when a single investor has a common interest w/ a promoter?
vertical commonality
who is a promoter?
the person trying to get you to invest in a particular transaction
A ponzi scheme automatically meets what type of commonality?
horizontal
