## Facts

- Continental Marketing Corporation sold contracts involving the sale of live beavers for breeding purposes and promoted the arrangement as a profit-making venture.
- Purchasers were told they could buy beavers and place them with “professional beaver ranchers” selected or recommended through Continental’s program.
- The program was marketed as largely passive: buyers paid purchase and ranching fees and expected profits from reproduction and resale without personal ranching activity.
- Although buyers could theoretically take delivery of identified animals, in practice all buyers placed beavers with the recommended ranchers rather than taking possession.
- The SEC alleged Continental and related participants were offering and selling unregistered securities and violating federal antifraud provisions through the beaver program.

## Issues

1. Whether Continental’s beaver-sale and ranching program constituted the offer and sale of “securities,” specifically “investment contracts,” under the Securities Act of 1933 and the Securities Exchange Act of 1934.

## Decision

- The Tenth Circuit affirmed the district court’s preliminary injunction against Continental.
- The court held the program involved the offer and sale of “investment contracts” and therefore “securities” subject to federal securities regulation.
- The court treated the beaver sales and the associated care/management/replacement/resale arrangements as parts of a single promotional scheme, not isolated transactions.

## Legal Principles

- An “investment contract” exists where there is (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits, (4) to be derived from the efforts of others (Howey test).
- Courts determine whether a transaction is a security by examining economic reality; formal labels and document structure do not control.
- A nominal sale of tangible property may be a security when bundled with promoter-selected management and a promised passive profit opportunity.
- Formally separate agreements may be considered together when they function interdependently as one investment program marketed to purchasers.

## Conclusion

Because purchasers were induced to invest for anticipated profits from the breeding program managed by others, and because the sales and ranching services operated as a unified scheme, the court classified the arrangement as an investment contract and upheld the SEC’s preliminary injunction.


Continental Mktg. Corp. v. SEC, 387 F.2d 466 (10th Cir. 1967)