Case study: SEC v. Howey (U.S. 1946) The facts:W. J. Howey Company, the respondent in the case, possessed a large area of citrus trees in Lake County, one fruitful place located in northwest central Florida. Of the five-hundredacre groves planted by the company, half was kept for the use of selling to customers and prospective clients and the other half was offered to the public to raise essential fund for the development of business. The Howey Company singed with investors land sales contract and service contract. Howey-in-the-Hills Service, Inc, the other entity accused by Securities and SEC(Security Exchange Commission), provided service of cultivating trees, harvesting crops and marketing products. According to the service contract, Howey-in-the-Hills Service would obtain the lease right of the garden, fully occupy the part of it, and exercise full rights over groves. The investors, however, need to pay fees to Howey, cannot get access to the land without the permission of Howey and even don’t have rights to dispose circus produced. SEC charged in 1945 Howey for issuing unregistered securities and violating Securities Act and asked court to prohibit it from doing so. The result of this case is Howey test, a far-reaching test standard of whether a transaction constitutes issue of security. Issue at law: The core of the dispute is whether Howey really sold investment contract and issued securities within range of the Act. "an investment contract (undefined by the Act) means a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.”( Pp. 328 U. S. 298-299). So the law can actually apply to the case of SEC v. Howey although there are no formal certificates of shares between investors and Howey Company. The substance of transaction is more important than form Is. the form of contract is of service contract but the substance is of investment contract that should be regulated by SEC, an essential judgement that effectively solves disputes at this case. The decision of supreme court: the offer of a land sales and service contract was an "investment contract" within the meaning of the Securities Act of 1933 (15 U.S.C. § 77b) and that the use of the mails and interstate commerce in the offer and sale of these securities was a violation of §5 of the Act, 15 U.S.C. § 77e.(Supreme Court 1945) Basic reasoning behind the decision:“The Supreme Court has defined an “investment contract” as any transaction in which “[1] a person invests money [2] in a common enterprise and [3] is led to expect profits [4] solely from the efforts of others (Alan 2017).” In the Case of SCE v Howey, the practice of law was applied to a broader range and the definition of security was not limited to a narrowed scope of meaning. When explaining the reasons why the behaviors of Howey constitute selling investment contract, Court pay more attention to following facts: investors indeed invest money into business of Howey Company; Howey and Howey-in-theHills Service were under common control; investors expected to gain profit in the future by signing contract; and their profits do not come from their own technology and efforts, but from the efforts of others. Therefore, the transaction belongs to securities stipulated in the related law ruled by SEC. Reasoning in the minority: From the stand of Howey, it just sold the complete right of the citrus groves, the terms of the contract were agreed by both parties, and the deed of title was also delivered. So Howey did not sell an investment contract but a service. In fact, both District court and The Circuit Court of Appeals judged that Howey won the case and that the behaviors of Howey did’t constitute selling investment. purchasers were permitted to inspect the land before they bought it, and they were allowed the option of using their own agricultural services(Frankfurter 1946). For one thing, the service provided by Howey service was only a guarantee, not anything else, that the investors’ citrus tress would be looked after by gardeners. For another, objects sold by Howey and Howey Service should be viewed separately: the former is citrus themselves and the latter is actually a service; Whether the investors are able to cultivate and operate the citrus groves without relying on others is not important. My on opinion: I strongly support the judgement made by Supreme Court as the practice of law in this case is no longer limited to the definition of clauses and has a far-reaching impact on the subsequent jurisprudence. “In the case before the Court, all the elements of a profit-seeking business venture were present. Investors provided the capital and shared in the earnings and profits; respondents managed, controlled, and operated the enterprise”(15 U.S.C.S. § 77b(1). But the case SEC v. Holly provides investors, businesses and other related stakeholders with a brand new sight of viewing what behaviors constitute issuing securities. The case establishes a very crucial standard for identifying securities, the so-called Howey test. The flexibility of the standard caters well to the original legislative intention of securities law to protect relevant investors to the greatest extent. This standard has been used for countless times since then to judge whether a transaction constitutes an "investment contract”. The decision also prevents businesses from avoiding the regulation of SEC when they issue security in other forms, resulting a more efficient financial market. For example, in the case of SEC v. Tomahawk(US. 2017), David T, the founder of this company, was accused of promoting a digital and virtual currency supported by diamond and real estate figures that actually do not exist. The promotional material shows that over-optimistic figures of oil production are presented and misleadingly suggests that the business has lease contract of drilling well. Investors should be alert to the risk of traditional fraud, such as oil and gas plans, disguised as innovative blockchain based ICO(Robert A 2017). Based on the Howey test, SEC established that it issued security and violated related act. Eventually, the rights and interests are protected by laws of security and market confidence is boosted.