Based on the Efforts of Others Sample Clauses

Based on the Efforts of Others. Finally, in order for an instrument to be deemed an investment contract, the profits must be generated “solely from the efforts of the promoter or a third party.”140 Following the Xxxxx Court’s insistence on flexibility, in SEC v. Xxxxx X. Xxxxxx Enterprises, Inc.,141 the Ninth Circuit declined to literally apply the fourth prong, namely the term “solely.”142 The Xxxxxx court adopted a more realistic approach, considering “whether the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise.”143 The court reasoned that adhering to a strict interpretation of the word “solely” “could result in a mechanical, unduly restrictive view…of an investment contract…[that]…would be easy to evade by adding a requirement that the buyer contribute a modicum of effort.”144 In other words, the Xxxxxx court did not want to create a loophole by which promoters could easily avoid SEC regulation by manipulating their schemes to fall outside the definition of “investment contract.” One year later, the Fifth Circuit, in SEC v. Koscot Interplanetary, Inc.,145 added support to the Xxxxxx holding. The court explained that the state court cases on which the Xxxxx Court based its definition of “investment contract” did not strictly apply the “solely from the efforts of others” prong.146 In these state court decisions, despite the investors’ participation, courts held that an investment contract existed.147 In addition, the court noted that, in Xxxxx, the Supreme Court cited several circuit 140 SEC v. X.X. Xxxxx Co., 328 U.S. 293, 299 (1946). 141 474 F.2d 476 (9th Cir. 1973). 142 Id. at 483. 143 Id. at 482. 144 Id. 145 497 F.2d 473 (5th Cir. 1974). 146Id. at 480. 147 Id. (citing State v. Gopher Tire & Rubber Co., 177 N.W. 937 (Minn. 1920) (involving an agreement that required investors to act as booster agents for the sale of tires); Xxxxxxx v. Liberty Packing Corp., 161 A. 193 (N.J. Ch. 1932) (involving an arrangement under which investors would raise rabbits bought from the promoter who, in turn, would purchase the offspring for a fixed price)). court cases that either failed to mention the word “solely” or did not impliedly support a strict construction of the rule.148 The Koscot court also included a long list of cases in which other courts had held that an investment contract was present despite actions taken by investors.149 Recently in SEC x. Xxxxxxx,150 the Suprem...