## Facts

- Ferguson and Welborn organized a real-estate venture to buy, move, rehabilitate, and resell or rent apartment buildings.
- Williams was invited to participate and paid $15,000 for a 25% interest in the venture.
- Williams contributed additional funds beyond the initial payment and participated in financing efforts, including signing or helping obtain a loan for the venture.
- Williams provided operational assistance through personnel and equipment and engaged in venture-related tasks rather than remaining passive.
- The venture failed after it could not obtain permanent construction financing.
- Williams claimed Ferguson and Welborn induced his participation with optimistic profit statements and failed to disclose material risks.

## Issues

1. Whether Williams’s 25% interest was a “security” (investment contract) under the Texas Securities Act given his active involvement in the enterprise.
2. Whether Ferguson and Welborn could be held liable to Williams for negligent management or related wrongdoing when the relationship functioned as a joint venture/partnership rather than an investor–issuer relationship.

## Decision

- The Court of Appeals reversed the trial court’s judgment and rendered that Williams take nothing.
- The court held the interest was not an investment contract (and thus not a security) because Williams did not expect profits primarily from the managerial or entrepreneurial efforts of others.
- Because there was no sale of a security, statutory nonregistration and misrepresentation theories under the Texas Securities Act failed.
- Treating the arrangement as a joint venture/partnership, the court found the record did not support liability for negligent management or breach of fiduciary duty.
- Alleged profit projections were treated as nonactionable opinions, particularly where conditioned on the venture’s success.

## Legal Principles

- An “investment contract” under the Texas Securities Act requires an expectation of profits derived primarily from the efforts of others; substantial, outcome-affecting participation by the purchaser defeats that element.
- Courts assess substance over labels; a participant’s actual conduct can establish a joint venture/partnership relationship rather than an investor–issuer relationship.
- When securities-law predicates fail, recovery based on nonregistration and securities misrepresentation provisions is unavailable.
- General optimism or conditional statements about future profitability are typically not actionable as fraud absent proof of actionable misrepresentation.

## Conclusion

The court concluded that Williams was an active joint-venture participant rather than a passive investor, so his interest was not a statutory security and the trial court erred in imposing Texas Securities Act and related liability; judgment was rendered that Williams recover nothing.


Ferguson v. Williams, 670 S.W.2d 327 (Tex. App.—Austin 1984)