CASE 21.2SEC v.Edwards (2004)involved sales of interests in pay telephones with a question before the U.S.Supreme Court of whether a moneymaking scheme falls outside the definition of an investment contract because the promised rate of return is fixed,rather than variable.How did the Court rule?

Question

Quizplus · Accepted Answer

The Court held that a promise of a fixed rate of return did not prevent the arrangement from being an investment contract. The Court stated that the key determining factor in whether an arrangement is an investment contract is whether the investors are relying on the efforts of others to make a profit, rather than their own efforts. In this case, the investors were relying on the efforts of the company to maintain and operate the pay telephones, and therefore the arrangement constituted an investment contract, regardless of the fixed rate of return promised.

CASE 212SEC V