Chap015Cases

The Legal and Regulatory Environment of Business

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Case 15-1 (Chapter 15, p. 442) SECURITIES AND EXCHANGE COMMISSION v. EDWARDS 124 S.Ct. 892 (2004) FACTS: This case involves the investment in payphones. Investors paid $7,000 to purchase a payphone. An investor was promised a return of $82 per month for 5 years when the $7,000 would be returned. Due to financial difficulties, these returns were not forthcoming. The SEC sued Charles Edwards as the CEO and sole shareholder of ETS Payphones, Inc. The SEC alleged Mr. Edwards failed to comply with federal securities laws. Mr. Edwards argued these investments arrangements were not covered by the federal securities laws, since the investors were guaranteed fixed payments. The 11 th Circuit Court of Appeals reversed the trail court’s judgment against Mr. Edwards. The SEC sought and was granted further review. ISSUE: Does the promise of a fixed return avoid the application of the federal securities laws? DECISION: No. REASONS: 1. An investment contract involves an investment of money in a common enterprise with the profits to come solely from the efforts of others. 2. The purchase of payphones meets this definition. 3. The promise of a fixed return does not avoid the need to comply with federal securities law. 4.
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Chap015Cases - Case 15 Case 15-1 (Chapter 15, p. 442)...

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