The Court found that the scheme involved an investment contract. Plaintiff claims that horizontal commonality is present here, and failing that, that we should adopt the more liberal vertical commonality test. Plaintiff does not even allege that other investors existed. Even if we assume that defendants sold paintings to other investors, there is no basis for assuming that the appreciation or depreciation of plaintiff's collection would benefit anyone other than himself. We need not consider plaintiff's suggestion that this Circuit adopt the vertical commonality test as no such vertical commonality is present here.
Vertical commonality requires that the fortunes of the investor and the promoter be interwoven.
The only motivation provided by the courses was to sell the courses to other investors in return for a commission. In Koscot Interplanetary, Inc., the scheme involved inducing investors to buy the right to sell cosmetic distributorships, and then inducing those who bought distributorships into selling distributorships to new investors for a commission. In both cases the investors and defendants shared the profits made when new investors were induced to become the new base for the pyramid. In this situation the investors' fortunes are clearly interwoven with those of the promoters, and accordingly there is vertical commonality. Conversely, defendants would receive a sales commission if plaintiff sells his paintings through defendant Galleries, even if he sells them at a loss.