474 F.2d 476
Fed. Sec. L. Rep. P 93,748
SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee,
GLENN W. TURNER ENTERPRISES, INC., et al., Defendants-Appellants.
United States Court of Appeals,
Feb. 1, 1973.
Before DUNIWAY, HUFSTEDLER, and TRASK, Circuit Judges.
DUNIWAY, Circuit Judge:
This is an appeal from an order, 348 F.Supp. 766, granting the
Securities and Exchange Commission a preliminary injunction. The
injunction prohibits offering and selling by appellants of certain
of their "Adventures" and "Plans", and also
any withdrawal by appellants of funds from the assets of the corporate
defendants other than in the regular course of business. Dare
To Be Great, Inc. (Dare), a Florida corporation, is a wholly owned
subsidiary of Glenn W. Turner Enterprises, Inc. The individual
defendants are, or were, officers, directors, *478 or employees
of the defendant corporations. [FN1]
FN1. The district court found that defendant Sant had not been
linked to these proceedings.
The trial court's findings, which are fully supported by the
record, demonstrate that defendants' scheme is a gigantic and
successful fraud. The question presented is whether the "Adventures"
or "Plan" enjoined are "securities" within
the meaning of the federal securities laws. Of the five that Dare
offers-Adventures I, II, III, and IV, and the $1,000 Plan-the
court held that Adventures III and IV and the $1,000 Plan are
securities. We affirm.
I. The Adventures and the $1000 Plan-the facade.
The five courses offered by Dare ostensibly involve two elements.
In return for his money, the purchaser is privileged to attend
seminar sessions and receives tapes, records, and other material,
all aimed at improving self- motivation and sales ability. He
also receives, if he purchases either Adventure III or IV or the
$1,000 Plan, the opportunity to help to sell the courses to others;
if successful he receives part of the purchase price as his commission.
There is no doubt that this latter aspect of the purchase is in
all respects the significant one.
Adventure I costs $300. The purchaser receives one portable tape
recorder, twelve tape recorded lessons, and certain written material
in notebooks. He is entitled to attend a 12-16 hour group session.
Adventure II includes Adventure I, and costs $700. The purchaser
receives twelve more tape recorded lessons. He is offered approximately
80 hours of group sessions.
Adventure III includes Adventures I and II, and costs $2,000.
The purchaser receives six more tape recordings, one notebook
of written material called "The Fun of Selling," and
a limited amount of written instructions and material, as well
as thirty more hours of group sessions. The purchaser also receives
a different sort of benefit. After fulfilling a few nominal requirements
he becomes an "independent sales trainee," empowered
to sell the Adventures. He receives $100 for each Adventure I,
$300 for each Adventure II, and $900 for each Adventure III that
Adventure IV costs $5,000, and includes Adventures I, II and
III. The purchaser receives six more tapes, the opportunity for
thirty more hours of group sessions, the opportunity to attend
two other week-long courses in Florida, at his own expense, and
he may or may not receive a movie projector with six cartridge-type
films. He also is now empowered to sell all of the Adventures
to others. For selling Adventure IV he gets $2,500.
Finally, there is the $1,000 Plan. For this sum the purchaser
receives the tape cassettes sold in Adventure II, but not the
accompanying written material. He also receives some additional
sales instruction, and may be entitled to a 24-hour group session.
He may also sell the Plan, if he brings two individuals to the
person who sold him the Plan, and if these two also purchase the
Plan from the first seller. If that occurs, he may then sell the
Plan on his own, receiving $400 for each additional sale that
he makes. If one brings three people into the scheme, he may sell
the $1,000 Plan without buying it himself, and would earn the
same $400 commission for each additional sale that he makes.
II. The Adventures and the Plan in operation.
It is apparent from the record that what is sold is not of the
usual "business motivation" type of courses. Rather,
the purchaser is really buying the possibility of deriving money
from the sale of the plans by Dare to individuals whom the purchaser
has brought to Dare. The promotional aspects of the plan, such
as seminars, films, and records, are aimed at interesting others
*479 in the Plans. Their value for any other purpose, is,
to put it mildly, minimal.
Once an individual has purchased a Plan, he turns his efforts
toward bringing others into the organization, for which he will
receive a part of what they pay. His task is to bring prospective
purchasers to "Adventure Meetings."
A. The meetings.
These meetings are like an old time revival meeting, but directed
toward the joys of making easy money rather than salvation. Their
purpose is to convince prospective purchasers, or "prospects,"
that Dare is a sure route to great riches. At the meetings are
employees, officers, and speakers from Dare, as well as purchasers
(now "salesmen") and their prospects. The Dare people,
not the purchaser-"salesmen", run the meetings and do
the selling. They exude great enthusiasm, cheering and chanting;
there is exuberant handshaking, standing on chairs, shouting,
and "money-humming". [FN2] The Dare people dress in
expensive, modern clothes; they display large sums of cash, flaunting
it to those present, and even at times throwing it about; they
drive new and expensive automobiles, which are conspicuously parked
in large numbers outside the meeting place. Dare speakers describe,
usually in a frenzied manner, the wealth that awaits the prospects
if they will purchase one of the plans. Films are shown, usually
involving the "rags-to-riches" story of Dare founder
Glenn W. Turner. The goal of all of this is to persuade the prospect
to purchase a plan, especially Adventure IV, so that he may become
a "salesman", and thus grow wealthy as part of the Dare
organization. It is intimated that as Glenn W. Turner Enterprises,
Inc. expands, high positions in the organization, as well as lucrative
opportunities to purchase stock, will be available. After the
meeting, pressure is applied to the prospect by Dare people, in
an effort to induce him to purchase one of the Adventures or the
plan. The sale is sometimes closed by the purchaser who brought
the prospect to the meeting, but primarily, by Dare salesmen,
specialists in the "hard sell." [FN3]
FN2. Although mention of "money-humming" is made at
several points in the record, we are not certain what this activity
entails, nor do we venture to guess.
FN3. On at least some occasions prospects are told to acquire
the necessary money through bank loans, by not being candid about
the purpose of the loan, and by making simultaneous applications
to a number of banks without informing each bank that more than
one application is being made.
The format of the meeting is preordained. A script created by
Dare is strictly adhered to. The format applies even to the sale,
there being a standard procedure for inducing the prospect to
sign his name to the agreement and to part with his money. While
no express guarantee of success is made at the meetings, and the
statement is made that the purchaser must expect to work, the
impression which is fostered is of the near inevitability of success
to be achieved by anyone who purchases a plan and follows Dare's
Dare also arranges, in addition to the Adventure Meetings, "GO
Tours," or "Golden Opportunity Tours." Prospects
are taken by plane or bus to one of Dare's regional centers where
further meetings and sales efforts are undertaken. A significant
effort is made during the trip itself to sell the plans to prospects.
Much the same atmosphere as at the meetings pervades the trip-exuberant
shouting, chanting, handshaking, relating of success stories,
and lavish displays of cash.
In a scheme such as this, the possibility that a market will
become "saturated" is a real one. Saturation has in
fact occurred in some markets, but this is not mentioned at the
meetings. Few, if any, purchasers of these plans have achieved
any success remotely approaching *480 that described by
defendants and their agents.
B. The role of the purchaser-salesman.
Once he has bought a plan that empowers him to help sell the
plans to others, the task of the purchaser is to find prospects
and induce them to attend Adventure Meetings. He is not to tell
them that Dare To Be Great, Inc. is involved. Rather, he catches
their interest by intimating that the result of attendance will
be significant wealth for the prospect. It is at the meetings
that the sales effort takes place. The "salesman" is
also told that to maximize his chances of success he should impart
an aura of affluence, whether spurious or not-to pretend that
through his association with Dare he has obtained wealth of no
small proportions. The training that he has received at Dare is
aimed at educating him on this point. He is told to "fake
it 'til you make it," or to give the impression of wealth
even if it has not been attained. He is urged to go into debt
if necessary to purchase a new and expensive automobile and flashy
clothes, and to carry with him large sums of money, borrowing
if necessary, so that it can be ostentatiously displayed. The
purpose of all this is to put the prospect in a more receptive
state of mind with respect to the inducements that he will be
subject to at the meetings.
III. The Adventures and Plans as Securities.
The district court held that Adventures III and IV, and the $1,000
Plan were securities under the Securities Act of 1933, 15 U.S.C.
§ 77a et seq. and the Securities Exchange Act of 1934, 15
U.S.C. § 78a et seq. The definitions of security that are
found in each Act are almost identical. [FN4] Both definitions
include the terms "investment contract," "certificate
of interest or participation in any profit-sharing agreement,"
and any "instrument commonly known as a 'security'."
The district court held that the plans in question fell into all
three categories of securities. Because we find them to be investment
contracts, we need not decide whether the other definitions are
applicable as well.
FN4. The Securities Act of 1933 defines "security" as:
". . . any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit- sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a 'security', or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing." 15 U.S.C. § 77b(1).
The Securities Exchange Act of 1934 defines "security" as:
". . . any note, stock, treasury stock, bond, debenture,
certificate of interest or participation in any profit-sharing
agreement or in any oil, gas, or other mineral royalty or lease,
any collateral-trust certificate, preorganization certificate
or subscription, transferable share, investment contract, voting-trust
certificate, certificate of deposit, for a security, or in general,
any instrument commonly known as a 'security' or any certificate
of interest or participation in, temporary or interim certificate
for, receipt for, or warrant or right to subscribe to any purchase,
any of the foregoing; but shall not include currency or any note,
draft, bill of exchange, or banker's acceptance which has a maturity
at the time of issuance of not exceeding nine months, exclusive
of days of grace, or any renewal thereof the maturity of which
is likewise limited." 15 U.S.C. § 78c(a)(10).
 The 1933 and 1934 Acts are remedial legislation, among
the central purposes of which is full and fair disclosure relative
to the issuance of securities, SEC v. W. J. Howey Co., 1945, 328
U.S. 293, 299, 66 S.Ct. 1100, 90 L.Ed. 1244; Tcherepnin v. Knight,
1967, 389 U.S. 322, 337, 88 S.Ct. 548, 19 L.Ed.2d 564. It is a
familiar canon of legislative construction that remedial legislation
should be construed broadly, Tcherepnin *481 v. Knight,
supra, 389 U.S. at 337, 88 S.Ct. 548. The Acts were designed to
protect the American public from speculative or fraudulent schemes
of promoters. [FN5] For that reason Congress defined the term
"security" broadly, and the Supreme Court in turn has
construed the definition liberally. In SEC v. Joiner Corp., 1943,
320 U.S. 344, 64 S.Ct. 120, 88 L.Ed. 88, the Court stated: "However,
the reach of the Act does not stop with the obvious and commonplace.
Novel, uncommon, or irregular devices, whatever they appear to
be, are also reached if it be proved as matter of fact that they
were widely offered or dealt in under terms or courses of dealing
which established their character in commerce as 'investment contracts,'
or as 'any interest or instrument commonly known as a "security"'."
320 U.S., Id. at 351, 64 S.Ct. at 123. In SEC v. W. J. Howey Co.,
supra, the Court stated that the definition of a security "embodies
a flexible rather than a static principle, one that is capable
of adaptation to meet the countless and variable schemes devised
by those who seek the use of the money of others on the promise
of profits." [FN6] 328 U.S. Id. at 299, 66 S.Ct. at 1103.
And in the recent case of Tcherepnin v. Knight, supra, the Court
stated, "[I]n searching for the meaning and scope of the
word 'security' in the Act, form should be disregarded for substance
and the emphasis should be on economic reality." Id. at 336,
88 S.Ct. at 553. We approach the definition of a "security"
with these admonitions in mind.
FN5. The broad purpose of the Securities Act of 1933 was stated in the report of the Senate Committee on Banking and Currency, S.Rep. No. 47, 73d Cong., 1st Sess. 1 (1933):
"The aim is to prevent further exploitation of the public
by the sale of unsound, fraudulent, and worthless securities through
misrepresentation; to place adequate and true information before
the investor; to protect honest enterprise, seeking capital by
honest presentation, against the competition afforded by dishonest
securities offered to the public through crooked promotion; .
. . ."
FN6. A sample listing of cases in which diverse schemes have been
held to involve securities includes: Continental Marketing Corp.
v. SEC, 10 Cir., 1967, 387 F.2d 466, cert. denied, 1968, 391 U.S.
905, 88 S.Ct. 1655, 20 L.Ed.2d 419 (beavers); Roe v. United States,
5 Cir., 1961, 287 F.2d 435, cert. denied, 368 U.S. 824, 82 S.Ct.
43, 7 L.Ed.2d 29 (mineral leases); Los Angeles Trust Deed &
Mortgage Exch. v. SEC, 9 Cir., 1961, 285 F.2d 162, cert. denied,
366 U.S. 919, 81 S.Ct. 1095, 6 L.Ed.2d 241 (mortgages and deeds
of trust); Penfield Co. of California v. SEC, 9 Cir., 1944, 143
F.2d 746, cert. denied, 323 U.S. 768, 65 S.Ct. 121, 89 L.Ed. 614
(whiskey sales contracts); SEC v. Crude Oil Corp. of America,
7 Cir., 1937, 93 F.2d 844 (crude oil sales contracts).
In SEC v. W. J. Howey Co., supra, the Supreme Court set out its by now familiar definition of an investment contract:
"The test is whether the scheme involves an investment of
money in a common enterprise with profits to come solely from
the efforts of others." Id. at 301, 66 S.Ct. at 1104.
In Howey the Court held that a land sales contract for units
of a citrus grove, together with a service contract for cultivating
and marketing the crops, was an investment contract and hence
a security. The Court held that what was in essence being offered
was "an opportunity to contribute money and to share in the
profits of a large citrus fruit enterprise managed and partly
owned by respondents." Id. at 299, 66 S.Ct. at 1103. The
purchasers had no intention themselves of either occupying the
land or developing it; they were attracted only "by the prospects
of a return on their investment." Id. at 300, 66 S.Ct. at
1103. It was clear that the profits were to come "solely"
from the efforts of others.
For purposes of the present case, the sticking point in the Howey
definition is the word "solely," a qualification which
of course exactly fitted the circumstances in Howey. All the other
elements of the Howey test have been met here. There is an investment
of money, *482 a common enterprise, [FN7] and the expectation
of profits to come from the efforts of others. Here, however,
the investor, or purchaser, must himself exert some efforts if
he is to realize a return on his initial cash outlay. He must
find prospects and persuade them to attend Dare Adventure Meetings,
and at least some of them must then purchase a plan if he is to
realize that return. Thus it can be said that the returns or profits
are not coming "solely" from the efforts of others.
FN7. A common enterprise is one in which the fortunes of the investor
are interwoven with and dependent upon the efforts and success
of those seeking the investment or of third parties. See, e. g.,
Los Angeles Trust Deed & Mortgage Exch. v. SEC, 9 Cir., 1961,
285 F.2d 162, 172, cert. denied, 366 U.S. 919, 81 S.Ct. 1095,
6 L.Ed.2d 241.
 We hold, however, that in light of the remedial nature
of the legislation, the statutory policy of affording broad protection
to the public, and the Supreme Court's admonitions that the definition
of securities should be a flexible one, the word "solely"
should not be read as a strict or literal limitation on the definition
of an investment contract, but rather must be construed realistically,
so as to include within the definition those schemes which involve
in substance, if not form, securities. Within this context, we
hold that Adventures III and IV, and the $1,000 Plan, are investment
contracts within the meaning of the 1933 and 1934 Acts. [FN8]
FN8. We note that under the laws of three states defendants' promotions
have been held to be securities: Hurst v. Dare To Be Great, Inc.,
D.Ore. (Civ.No. 71-160, Jan. 12, 1972); State of Idaho v. Glenn
Turner Enterprises, Inc., Dist.Ct. 4th Jud. Dist.Ida. (Civ. No.
47773, March 28, 1972); Frye v. Taylor, Dist. Ct. of Appeal, 4th
Dist. Fla., 1972, 263 So.2d 835.
Strict interpretation of the requirement that profits to be earned
must come "solely" from the efforts of others has been
subject to criticism. See, e. g., State of Hawaii v. Hawaii Market
Center, Haw.1971, 485 P.2d 105. Adherence to such an interpretation
could result in a mechanical, unduly restrictive view of what
is and what is not an investment contract. [FN9] It would be easy
to evade by adding a requirement that the buyer contribute a modicum
of effort. Thus the fact that the investors here were required
to exert some efforts if a return were to be achieved should not
automatically preclude a finding that the Plan or Adventure is
an investment contract. To do so would not serve the purpose of
the legislation. Rather we adopt a more realistic test, whether
the efforts made by those other than the investor are the undeniably
significant ones, those essential managerial efforts which affect
the failure or success of the enterprise.
FN9. See, e. g., Georgia Market Centers, Inc. v. Fortson, 1969,
225 Ga. 854, 171 S.E. 2d 620; Gallion v. Alabama Market Centers,
Inc., 1968, 282 Ala. 679, 213 So.2d 841. Compare State of Hawaii
v. Hawaii Market Center, 1971, 485 P.2d 105.
In this case, Dare's source of income is from selling the Adventures
and the Plan. The purchaser is sold the idea that he will get
a fixed part of the proceeds of the sales. In essence, to get
that share, he invests three things: his money, his efforts to
find prospects and bring them to the meetings, and whatever it
costs him to create an illusion of his own affluence. He invests
them in Dare's get-rich-quick scheme. What he buys is a share
in the proceeds of the selling efforts of Dare. Those efforts
are the sine qua non of the scheme; those efforts are what keeps
it going; those efforts are what produces the money which is to
make him rich. In essence, it is the right to share in the proceeds
of those efforts that he buys. In our view, the scheme is no less
an investment contract merely because he contributes some effort
as well as money to get into it.
Let us assume that in Howey, supra, the sales and service agreements
had provided that the buyer was to buy and plant the citrus trees.
Unless he did so, there would be no crop to cultivate, harvest
*483 and sell, no moneys in which he could share. The essential
nature of the scheme, however, would be the same. He would still
be buying, in exchange for money, trees and planting, a share
in what he hoped would be the company's success in cultivating
the trees and harvesting and marketing the crop. We cannot believe
that the Court would not have held such a scheme to be an investment
contract. So here. Regardless of the fact that the purchaser here
must contribute something besides his money, the essential managerial
efforts which affect the failure or success of the enterprise
are those of Dare, not his own.
Our holding in this case represents no major attempt to redefine
the essential nature of a security. [FN10] Nor does our holding
represent any real departure from the Supreme Court's definition
of an investment contract as set out in Howey. We hold only that
the requirement that profits come "solely" from the
efforts of others would, in circumstances such as these, lead
to unrealistic results if applied dogmatically, and that a more
flexible approach is appropriate.
FN10. See Coffey, The Economic Realities of a "Security":
Is There a More Meaningful Formula?, 18 W.Res.L.Rev. 367 (1967)
wherein Professor Coffey proposes new guidelines for determining
the existence of a security.