Thursday, November 7, 2013

Securities and Exchange Commission v. Koscot Interplanetary, Inc. case brief

Securities and Exchange Commission v. Koscot Interplanetary, Inc. case brief summary
497 F.2d 473 (1974)

CASE SYNOPSIS
Plaintiff, the Securities and Exchange Commission, appealed the decision of the United States District Court for the Northern District of Georgia, which denied an injunction sought by the Commission against defendant for allegedly violating the federal securities laws.

CASE FACTS
Plaintiff commission sought an injunction against defendant, asserting that defendant's pyramid promotion enterprise was a "security" under the Securities Act of 1933, 15 U.S.C.S. § 77b (1) (the Securities Act) and the Securities Exchange Act of 1934, 15 U.S.C.S. § 78c (a) (10) (the Exchange Act), that it had to be registered pursuant to the Exchange Act, and that defendant's promotion of its enterprise to potential investors contravened the anti-fraud provisions of the Exchange Act. The district court denied the injunction. The commission appealed.

DISCUSSION
  • Applying the Howey test, the court reversed the district court's decision and remanded. 
  • The court concluded that defendant's scheme, in which the promoter retained immediate control over the managerial conduct of an enterprise and the investor's realization of profits was tied to the success of the promotional scheme, encompassed an investment contract and was subject to the anti-fraud provisions of the Exchange Act.

CONCLUSION
The decision of the lower court denying an injunction sought by plaintiff commission against defendant for allegedly violating the federal securities laws, was reversed and remanded.

Suggested Study Aids For Securities Regulation Law
Securities Regulation in a Nutshell, 10th (Nutshell Series)
Securities Regulation: Examples & Explanations, 5th Edition
Securities Regulations: The Essentials

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