Brief Fact Summary. The Smiths’ (P) suit against Gross (D) on violation of federal securities law was dismissed on the finding that there was no security involved in the parties transactions.
Synopsis of Rule of Law. An investment contract type of security requires (1) an investment of money (2) in a common enterprise (3) with profits to come exclusively from the efforts of others.
A dismissal of an action for failure to show that a security is involved is addressed to the merits and, thus, the judgment is based on failure to state a claim 12(b)(6) rather than a lack of subject matter jurisdiction.
View Full Point of LawIssue. Is there an investment contract type of security when the following occurs? (1) an investment of money (2) in a common enterprise (3) with profits to come exclusively from the efforts of others.
Held. (Per curiam) Yes. An investment contract type of security exists when the following occurs, (1) an investment of money (2) in a common enterprise (3) with profits to come exclusively from the efforts of others. Since the three criteria are met, a security was involved. Reversed.
Discussion. The definition of “security†has a wide reach in this line of cases. The result has allowed investors to recover from unscrupulous investment schemes via securities laws. A notable exception is in International Brotherhood of Teamsters v. Daniel, 439 U.S. 551 (1979), in which the United States Supreme Court found that a noncontributory pension plan was not a “security&rdquo.