Opinion ID: 2610242
Heading Depth: 2
Heading Rank: 3

Heading: The Lack of Managerial Control Over the Enterprise.

Text: Finally, as previously stated, it is irrelevant to the remedial purposes of the Securities Act that an investor participates in a minor way in the operations of the enterprise. Courts should focus on the quality of the participation. In order to negate the finding of a security the offeree should have practical and actual control over the managerial decisions of the enterprise. For it is this control which gives the offeree the opportunity to safeguard his own investment, thus obviating the need for state intervention. Coffey, The Economic Realities of a Security: Is There a More Meaningful Formula?, supra at 396-398. In the present case the founder-members possess none of the incidents of managerial control which would preclude the finding of a security. The members have no power to influence the utilization of the accumulated capital. Nor will they have any authority over those decisions which will affect the operation of the store, if it is successfully established. Judged by an ability to protect their original investment, the offerees in this case are powerless. Thus, under the economic realities approach presently advocated, they properly belong to the class of investors falling within the remedial purposes of the Securities Act. Therefore we hold that the present agreements are investment contracts within the meaning of the Hawaii Uniform Securities Act (Modified) and must be registered with the Commission of Securities prior to distribution. Judgment affirmed.