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

Heading: The Promise of a Valuable Return on the Offeree's Investment.

Text: The appellants contend that because of the nature of the receipts promised to founder-members the trial court erred in finding the existence of a security. They stress that founder-members do not participate in the profits of the enterprise. They are promised fixed fees and commissions, which are payable regardless of the existence of profits. Therefore, it is argued, the essential profits sharing element of a security is lacking. Commonwealth ex rel. Pennsylvania Securities Commission v. Consumers Research Consultants, Inc., 414 Pa. 253, 256, 199 A.2d 428, 429 (1964). Once again, this argument ignores the economic realities underlying securities regulation. It should be irrelevant to the protective policies of the securities laws that the inducements leading an investor to risk his initial investment are founded on promises of fixed returns rather than a share of profits. The reference point should be the offeree's expectations, not the balance sheet of the offeror corporation. The unwary investor lured by promises of fixed fees deserves the same protection as a participant in a profit sharing plan. For this reason courts have avoided a narrow definition of profits. They have recognized securities sales even where the promised benefits to the offeree were indirect, arising from an anticipated increase in the value of the property received, rather than direct payments from the offeror. Securities & Exchange Commission v. C.M. Joiner Leasing Corp., supra, 320 U.S. at 348-349, 64 S.Ct. 120, 88 L.Ed. 88; Roe v. United States, 287 F.2d 435, 439 (5th Cir.), cert. denied, 368 U.S. 824, 82 S.Ct. 43, 7 L.Ed.2d 29 (1961). Thus, the fact that in the instant case HMC guaranteed the offerees amounts of money independent of enterprise profits does not undermine the investment nature of the transactions.