Securities and Exchange Commission v. Wills, 987 F.3d 123 (9th Cir. 2023)
The case 'SEC v. Wills' represents a pivotal moment in securities law by addressing the intricate nature of investment schemes and their classification as securities.
Whether the high-yield investment programs offered by Wills constitute 'securities' under the Securities Act of 1933 and the Securities Exchange Act of 1934.
An instrument qualifies as a security, requiring adherence to the registration and disclosure requirements set by the Securities Act of 1933 and the Securities Exchange Act of 1934, if it qualifies as an 'investment contract'. An investment contract exists when there is an investment of money in a common enterprise with the expectation of profits predominantly from the efforts of others.
The court held that the high-yield investment programs offered by Wills constituted securities under federal law because they met the criteria of investment contracts: there was an investment of money, in a common enterprise, with a reasonable expectation of profits derived primarily from the efforts of others.
This case is significant because it extends the understanding of what may constitute a security under the federal securities law to include non-traditional and innovative financial instruments. It highlights the applicability of the Howey Test as a flexible measure for determining whether an investment scheme should be regulated as a security, reinforcing the regulatory boundaries within which innovators and promoters must operate. For law students, this case illustrates the dynamic nature of securities regulation and the judicial assessment involved in applying established legal tests to modern financial products.