First Circuit Rules For First Time on "Common Enterprise" Element of Definition of "Investment Contract" Securities
The U.S. Court of Appeals for the First Circuit (the "First Circuit") ruled for the first time ("the Decision") on what constitutes a "common enterprise" for purposes of the U.S. Supreme Court’s definition of "investment contract" in SEC v. W. J. Howey Co., 328 U.S. 293 (1946) ("Howey"), which is one of the terms enumerated in the definitions of "security" contained in the Securities Act of 1933 as amended (the "Securities Act") and the Securities Exchange Act of 1934 as amended (the "Exchange Act"). The facts underlying the Decision revolve around an arrangement that allegedly resembles traditional pyramid or Ponzi schemes. SG Ltd., a Dominican corporation, and its affiliate (collectively, "SG") operated an online investment "game," in which participants purchased or sold shares in "virtual companies" listed on the website’s "virtual stock exchange" ("Virtual Shares")
