Securities and Exchange Commission v. EdwardsUnless otherwise stated, you should answer in complete sentences, and be sure to use correct English, spelling, and grammar. Sources must be cited in APA format.Your response should be a minimum of four (4) double-spaced pages; refer to the Length and Formatting instructions below for additional details.In complete sentences respond to the following prompts:Summarize the facts of the case;Identify the parties and explain each party’s position;Outline the case’s procedural history including any appeals;What is the legal issue in question in this case?How did the court rule on the legal issue of this case?What facts did the court find to be most important in making its decision?Respond to the following questions:Why was the Supreme Court unwilling to exclude contracts guaranteeing a fixed rate of return from the definition of security?Are mortgage notes securities when they are sold with a package of management services and a promise to repurchase the notes in the event of default?Do you agree or disagree with the court’s decision? If you disagree, provide an explanation of your reasoning.· OCTOBER TERM, 2003SEC V. EDWARDSSUPREME COURT OF THE UNITED STATES· SECURITIES AND EXCHANGE COMMISSION v. EDWARDS· certiorari to the united states court of appeals for the eleventh circuit· No. 02–1196. Argued November 4, 2003—Decided January 13, 2004· Respondent was the chairman, chief executive officer, and sole shareholder of ETS Payphones, Inc., which sold payphones to the public via independent distributors. The payphones were offered with an agreement under which ETS leased back the payphone from the purchaser for a fixed monthly payment, thereby giving purchasers a fixed 14% annual return on their investment. Although ETS’ marketing materials trumpeted the “incomparable pay phone” as “an exciting business opportunity,” the payphones did not generate enough revenue for ETS to make the payments required by the leaseback agreements, so the company depended on funds from new investors to meet its obligations. After ETS filed for bankruptcy protection, the Securities and Exchange Commission (SEC) brought this civil enforcement action, alleging, among other things, that respondent and ETS had violated registration requirements and antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, and Rule 10b–5 thereunder. The District Court concluded that the sale-and-leaseback arrangement was an “investment contract” within the meaning of, and therefore subject to, the federal securities laws. The Eleventh Circuit reversed, holding that (1) this Court’s opinions require an “investment contract” to offer either capital appreciation or a participation in an enterprise’s earnings, and thus exclude schemes offering a fixed rate of return; and (2) those opinions’ requirement that the return on the investment be derived solely from the efforts of others was not satisfied when the purchasers had a contractual entitlement to the return.· Held: An investment scheme promising a fixed rate of return can be an “investment contract” and thus a “security” subject to the federal securities laws. Section 2(a)(1) of the 1933 Act and §3(a)(10) of the 1934 Act define “security” to include an “investment contract,” but do not define “investment contract.” This Court has established that the test for determining whether a particular scheme is an investment contract is “whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others.” SEC v. W. J. Howey Co., 328 U. S. 293, 301. This definition embodies a flexible, rather than a static, principle that is capable of adaptation to meet the countless and variable schemes devised by those seeking to use others’ money on the promise of profits. Id., at 299. The profits this Court was speaking of in Howey are profits—in the sense of the income or return—that investors seek on their investment, not the profits of the scheme in which they invest, and may include, for example, dividends, other periodic payments, or the increased value of the investment. There is no reason to distinguish between promises of fixed returns and promises of variable returns for purposes of the test, so understood. In both cases, the investing public is attracted by representations of investment income. Moreover, investments pitched as low risk (such as those offering a “guaranteed” fixed return) are particularly attractive to individuals more vulnerable to investment fraud, including older and less sophisticated investors. Under the reading respondent advances, unscrupulous marketers of investments could evade the securities laws by picking a rate of return to promise. This Court will not read into the securities laws a limitation not compelled by the language that would so undermine the laws’ purposes. Respondent’s claim that including investment schemes promising a fixed return among investment contracts conflicts with precedent is mistaken, as no distinction between fixed and variable returns was drawn in the blue sky law cases that the Howey Court relied on, and no post-Howey decision is to the contrary, see United Housing Foundation, Inc. v. Forman, 421 U. S. 837, 852–853. Dictum suggesting otherwise in Reves v. Ernst & Young, 494 U. S. 56, 68, n. 4, was incorrect. The SEC has consistently maintained that a promise of a fixed return does not preclude a scheme from being an investment contract. The Eleventh Circuit’s alternative holding, that respondent’s scheme falls outside the definition because purchasers had a contractual entitlement to a return, is incorrect and inconsistent with this Court’s precedent. Pp. 3–8.· 300 F. 3d 1281, reversed and remanded.· O’Connor, J., delivered the opinion for a unanimous Court.· Disclaimer: Official Supreme Court case law is only found in the print version of the United States Reports. Justia case law is provided for general informational purposes only, and may not reflect current legal developments, verdicts or settlements. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or information linked to from this site. Please check official sources.· Justia Annotations is a forum for attorneys to summarize, comment on, and analyze case law published on our site. Justia makes no guarantees or warranties that the annotations are accurate or reflect the current state of law, and no annotation is intended to be, nor should it be construed as, legal advice. 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