In 1946, SEC v W.J. Howey Co. (328 U.S. 293) ruled the meaning of “security” as used in the provision of § 2(1) of the Securities Act of 1933 defining “security” as :
“For purposes of the Securities Act, an investment contract (undefined by the Act) means a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.”
There are three components:
1. expectation of profits
2. a common enterprise
3. depends “solely” for its success on the efforts of others.
I understand (1) and (3) seems somewhat self-explanatory (although the quotes around "solely" give me pause.) But I don't understand "common enterprise" at all.
The term "common enterprise" refers to the pooling of resources from multiple investors, who are united in their pursuit of a common goal or objective.
So hyperbole above is false, real estate, in the simple sense, isn't regulated by the SEC.
Real estate isn't. Investing in an LLC with some friends that buys an LLC is then a common enterprise. And if you are a hands off investor, then it's the shares are a security.
