The 1933 Securities Act Defines the Term "Security

question 10

Essay

The 1933 Securities Act defines the term "security." The Supreme Court of the United States has adopted a two-tier analysis of what constitutes a security. Within this analysis the Court has used a three-part test to determine whether a non-traditional financial transaction constitutes an investment contract and thus a security. Explain (a) the 1933 Act's statutory definition of security, (b) the courts' general interpretation of the 1933 Act's definition and (c) the Supreme Court's two-tier test. Use case law to illustrate your explanation, if appropriate. Also, why do you think the Supreme Court had to devise such an analysis?

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Definitions:

Credit Terms

Conditions under which credit is extended by a lender to a borrower, including repayment schedule, interest rate, and late penalties.

Inventory Returns Estimated

An estimate of the value or volume of goods that are expected to be returned by customers over a specific period.

Sales Refund Payable

Obligations to return funds received from customers due to returns or refunds of products or services.

Sales Returns

Transactions in which customers return previously purchased merchandise for a refund, store credit, or exchange.