## Facts

- Tucker Corporation, a start-up automobile manufacturer, sought to raise funds through (1) a public offering of common stock and (2) dealer/distributor franchise agreements requiring upfront payments.
- Under the franchise program begun in 1946, dealers paid amounts that included a $25-per-car “deposit” tied to future vehicle orders.
- Tucker represented that the per-car deposits would be repaid or credited at a later date.
- In May 1947, Tucker filed a registration statement under the Securities Act of 1933 for a public offering of common stock.
- In June 1947, the SEC instituted a stop-order proceeding under § 8(d), focusing on whether the franchise/deposit arrangements functioned as unregistered securities offered or sold before effectiveness, potentially violating § 5(c).
- Tucker modified aspects of the arrangements and expanded disclosures to address concerns that the program resembled capital-raising rather than ordinary commercial prepayments.

## Issues

1. Whether Tucker’s franchise agreements and repayable per-car “deposit” obligations constituted “securities” (including investment contracts or evidences of indebtedness) requiring registration under the Securities Act of 1933.
2. Whether offering or selling those arrangements prior to an effective registration statement violated § 5(c), warranting a stop order under § 8(d) with respect to the stock registration statement.
3. What factors distinguish bona fide commercial franchise/dealer prepayments from investment-type financing devices under the federal securities laws.

## Decision

- The SEC declined to enter a stop order and dismissed the stop-order proceeding.
- Based on the revised structure and disclosures, the SEC did not treat the particular franchise deposit arrangements at issue as a separate class of securities requiring registration.
- The SEC nonetheless cautioned that franchise or distributorship arrangements using “deposits” or repayment features may be securities depending on their economic substance and the role the funds play in financing the enterprise.

## Legal Principles

- Classification under the Securities Act turns on economic reality rather than labels; a “franchise” or “dealership” agreement can be a security if it functions as an investment.
- A franchise-related payment may be treated as a security where it primarily serves to raise capital for a venture and the purchaser’s expected benefit depends chiefly on the promoter’s managerial or entrepreneurial efforts.
- Ordinary commercial prepayments tied to purchasing and reselling goods, integrated into an active dealer-manufacturer relationship, are less likely to be treated as securities than passive, stand-alone financing arrangements.
- Full and accurate disclosure about capital-raising methods and related obligations is central to evaluating whether a registration statement should be stopped and to investor protection under the 1933 Act.

## Conclusion

The SEC allowed Tucker’s stock registration to proceed and dismissed the stop-order matter, while using the proceeding to explain that franchise and deposit programs may trigger registration requirements when they operate in substance as investment or indebtedness schemes rather than bona fide commercial dealership arrangements.


In re Tucker Corp., 26 S.E.C. 249 (S.E.C. 1947)