Opinion ID: 2452400
Heading Depth: 1
Heading Rank: 2

Heading: The Hawaiian View

Text: Hawaii, like Arkansas, has adopted the Uniform Securities Act. In State of Hawaii v. Hawaii Market Center, Inc., 52 Hawaii 642, 485 P.2d 105 (1971), the Supreme Court of Hawaii was called upon to define the term investment contract. In so doing, the Hawaiian court went further than the United States Supreme Court in interpreting its Act, as follows: The salient feature of securities sales is the public solicitation of venture capital to be used in a business enterprise. . This subjection of the investor's money to the risks of an enterprise over which he exercises no managerial control is the basic economic reality of a security transaction.... Any formula which purports to guide courts in determining whether a security exists should recognize this essential reality and be broad enough to fulfill the remedial purposes of the Securities Act. Those purposes are (1) to prevent fraud, and (2) to protect the public against the imposition of unsubstantial schemes by regulating the transactions by which promoters go to the public for risk capital. HRS § 485-10(e). Therefore, we hold that for the purposes of the Hawaii Uniform Securities Act (Modified) an investment contract is created whenever: (1) An offeree furnishes initial value to an offeror, and (2) a portion of this initial value is subjected to the risks of the enterprise, and (3) the furnishing of the initial value is induced by the offeror's promises or representations which give rise to a reasonable understanding that a valuable benefit of some kind, over and above the initial value, will accrue to the offeree as a result of the operation of the enterprise, and (4) the offeree does not receive the right to exercise practical and actual control over the managerial decision of the enterprise. The above test provides, we believe, the necessary broad coverage to protect the public from the novel as well as the conventional forms of financing enterprises. Its utility is best demonstrated by its application to the facts in the instant case.