This particular Supreme Court case established just what a security was.
It started when a guy began selling real estate that his established orange grove just happened to be planted in. It was kinda implied that people got profit from these oranges. However, the dude's company managed all of the trees itself, and, if buyers didn't use the company's management services, the buyers couldn't realistically make any money off of their investment.
As a result, the court ruled that the acreage investment was a kind of security contract, and as such, came under different (higher) scrutiny than if the buyer had just bought non-productive-land. When money flows to buy a Thing, it's a security.
Talk about makin' lemonade out of…oranges.
Related or Semi-related Video
Finance: What is the Securities Act of 1...60 Views
Finance a la Shmoop! What is the Securities Act of 1933? Hey, is it these
axes? No, it's a different act, or a whole bunch of Acts in the 30s and the
40s. All right, well for a long time the
little guy had, well not really much more than a prayer, when it came to investing [man praying in church]
his money. Like investing it well. The stock market appeared to be this wild,
wild, Westy thing, with few rules and a whole lot of insider trading information,
driving the bus, or carriage, or whatever they had back then. In fact before 1933,
securities laws were a, state thing. Each state had its own view as to how much
the poor uneducated farmer should be protected by the government. In fact
most really weren't protected at all. Making matters even worse, States [man and woman trading on map]
citizens, invested in each other all the time. Like across the state border. So
what would then happen when one set of state's laws, applied to one side of the
trade and one state set of laws, was conjoined to another set of laws, applied
to the other in a different state. Yeah that was a problem. Clearly we needed,
national laws and that's when the 1933 Securities Act was born, setting federal
law above state law. But keeping state laws generally intact when the [Uncle Sam]
intrastate activities were happening. What did all that mean? Well it
meant that the default laws generally revolved around whatever the state had
already in place. Except in the case where transactions, required a federal
purview, or look-see. Because the transactions happened among, two or more
states, or that they violated some major federal law. Like discrimination or
something like that down the line. Well the notion here, was that, farmers were
being sold acres of, quote, Blue Sky, unquote. Like you had to pay for the blue [two men in field]
sky and we're not talking about smog here. Instead of things of real value.
Right, like farmers would believe that they could buy an acre of blue sky.
Sorry, farmer Joe, we're just keeping it real there, you really did try to buy
acres of blue sky. Was solely because, farmer Joe, did not possess the education, [squirrels in head]
to determine the difference between a real investment opportunity and a fake
one. Finally the government, well they just had to step in and protect the
average Joe, from the average, you know Schmo.[man talking in front of parchment]
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