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Case Basics
Docket No. 
Securities and Exchange Commission
Charles E. Edwards
(argued the cause for Petitioner)
(argued the cause for Respondent)
Facts of the Case 

Charles Edwards founded a company that sold pay telephones and then leased them back from the purchasers for a fixed monthly fee. After Edwards filed for bankruptcy, the Securities and Exchange Commission (SEC) sued him for selling securities (considering the telephones to be investments on the part of the purchasers and therefore securities) in violation of the registration and anti-fraud provisions of the federal securities laws.

A federal district court froze Edwards' assets in a preliminary injunction. The 11th Circuit Court of Appeals overruled the district court's injunction for lack of jurisdiction. The SEC, the court reasoned, failed to show that Edwards' selling pay telephones was an "investment contract" under federal securities laws. In defining "investment contract," the court used the Supreme Court's ruling in SEC v. W.J. Howey Co. (1946), that a financial interest is an "investment contract" if it involves (1) an investment of money, (2) in a common enterprise, (3) with the expectation of profits to be derived solely from the efforts of others. The 11th Circuit ruled that the SEC could not meet the test's third part because the purchasers received a fixed fee that was guaranteed by contract and therefore not dependant on Edwards' success.


Does the Securities Exchange Act's (1934) term "investment contract" include an investment scheme in which the promoter promises a fixed return or the investor is entitled to a particular rate of return?

Decision: 9 votes for SEC, 0 vote(s) against
Legal provision: Securities Act of 1933, the Securities and Exchange Act of 1934, or the Williams Act

Yes. In a unanimous opinion delivered by Justice Sandra Day O'Connor, the Court held that an investment scheme promising a fixed rate of return can be an "investment contract" and thus a "security" subject to federal securities laws. The test the Court uses for determining whether a 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." Because the test does not distinguish between promises of fixed returns and promises of variable returns, the scheme at issue here can be defined as an "investment contract."

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SEC v. EDWARDS. The Oyez Project at IIT Chicago-Kent College of Law. 26 August 2015. <>.
SEC v. EDWARDS, The Oyez Project at IIT Chicago-Kent College of Law, (last visited August 26, 2015).
"SEC v. EDWARDS," The Oyez Project at IIT Chicago-Kent College of Law, accessed August 26, 2015,