SEC v Edwards
From the SEC v Edwards’s case, it is accurate to say that the provision for a fixed return frustrates the element of the Howey test of being “derived solely from the efforts of others.” From the case, it can be said that an investment plan that promises a fixed return rate is supposed to be considered a venture contract and hence be considered a security. As a security, the venture contract is dependent on the federal securities law (Albert 1). The court in SEC v Edward decided that the determinant assessment for whether a given plan is considered a venture contract depends on whether the plan consists of an investment of funds in a shared business with the profits coming exclusively from the effort by others. The definition embodies a flexible principle, capable of being adapted to meet the many schemes devised by those that seek to exploit others’ money while promising profits.
Referring to SEC v Howey, the court spoke of profits in the sense that they would mean return or income sought by investors on their venture. It did not, however, refer to profits in the sense of schemes in which investors invested—including things like dividends intermittent payments or escalated cost of investment. There is no intention, therefore, to differentiate between pledges of a fixed return and those of variable yields for the Howey test as so recognized (Albert 1).
In either case, however, the public that is investing is considered to be drawn by the representation of venture income. It is also important to realize that investments rolled as low-risk—especially those that offer assured fixed returns—can be exceptionally attractive to investors that are more susceptible to investment deceit (Albert 1). Under the advances of the reading respondents, it is accurate to deduce that unscrupulous investment marketers are most capable of evading the securities law by choosing the rate of return that they can promise.
Effect of Other Federal Regulatory Schemes on Oversight of Federal Securities Law
Federal securities regulation and State corporate law often overlap to some extent as they both impose duties on corporate managers. The majority of the time, however, the dual regulation scheme creates conflicts. In some corporate disputes, participants would present legal arguments from the consequences of differential regulation. The availability of other federal regulatory schemes can make it unnecessary for federal securities law to conduct oversight.
The problems of dual regulation often appear in two different manners. The first involves delineation of scope and availability of fraud actions under federal securities law. The second case involved the challenging of reach of certain states’ corporations’ acts as well as that of the Securities and Exchange Commission. Such challenges often occur when these laws affect transactions of securities, which may alter the control of certain corporations (Lemos 698). In fraud cases of the federal securities, the US Supreme Court is now expected to use the presence of parallel state corporate law as a reason to limit the reach of federal law, thus affecting oversight by the federal securities laws.
Dual regulation can create difficult questions regarding federalism, especially while dealing with manager-investor relations. One reason for the claimed difficulties is the fact that the federal securities laws contain a clear congressional command, that state corporate law should be preserved, even though federal regulations and statutes have established important national standards for the behaviour of the securities market (Lemos 698). The state regulatory function can be said to have partly survived because the states have since lobbied to preserve their revenues from incorporation.
- Albert, Miriam R. “The Howey Test Turns 64: Are the Courts Grading This Test on a Curve.” Wm. & Mary Bus. L. Rev. 2 (2011): 1.
- Lemos, Margaret H. “State enforcement of federal law.” NYUL Rev. 86 (2011): 698.
