Definition of Security Implications of drawing line

Definition of Security

Implications of drawing line

What is “security”?

Securities Act § 2 Definitions When used in this subchapter, unless the context otherwise requires-- (1) The term "security" means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

Apply to real estate …

A - Beachfront Resorts offers buyers "rooms" in a beachfront hotel. All rents from hotel rooms are pooled, and each buyer receives a pro rata net rentals for her room. Buyers cannot occupy their rooms, except for 2 designated weeks each year. Beachfront Resorts emphasizes that rent will cover P&I. B - Dubois is a real estate agent who offers Hawaiian condos. To sell condos, Dubois recommends that buyers consider a management contract with Hotel Corp. Pacific -- condo management and rent collection services. Dubois gets no compensation from HCP, and not all buyers use HCP. Under HCP's rent pooling agreement, rents from various condos are pooled; buyers can occupy for only 2 weeks/year. Dubois tells buyers rent pooling will pay P&I. C - Fox Hills Golf Villas offers "weeks" at its golf complex condos. Buyers can use their week of occupancy in two ways: (1) rent their condo (on their own or through Fox Hills) and receive a rental payment, or (2) occupy the condo themselves. Fox Hills emphasizes that buyers who choose to rent will be able to cover P&I. D - Disney World Opportunities ("Dwops") offers residential lots in a resort community near Disney World. Dwops requires buyers to pay "dues" for a Dwopsoperated country club and other community facilities, such as a club house, gardens, swimming pool, tennis courts, and water treatment. Dwops emphasizes to investors the potential appreciation of the lots.

Apply to business interests …

B - Bif and Barbie invest as limited partners in a limited partnership that acquires houses for investment. General partner, Goodacre Investments, is charged under the limited partnership agreement to develop, lease and sell the properties. Under the agreement, Bif and Barbie retain authority to approve the purchase and develop new properties, and to remove Goodacre. Bif and Barbie are who they are. C - Carl and Carol are 2 of 23 investors who invest in Rivanna Trawlers Unlimited, a general partnership. RTU buys fishing boats and hires an outside management company. Things go poorly and the partners get rid of the management company. They then sue the management company for fraud – under the federal securities laws. D - Daniella, an associate with GMPK LLC, an international accounting firm, is excited when she learns she will be made “member“ of the firm. She is told that she will have to invest $20, 000. She is also told it would be unseemly for her to ask any questions about the firms’ operating agreement, even though "due diligence" is a regular part of her practice. When Daniella becomes a member, she learns that the firm faces an SEC investigation for its work on Exron. She had no idea.

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