## Facts

- Promoters organized six oil-and-gas drilling projects as joint ventures and sold “units” or “interests” to about 340 investors.
- Arcturus Corporation and Aschere Energy, L.L.C. served as managing venturers (day-to-day operations) and received management fees.
- R. Thomas & Co., L.L.C. and AMG Energy, L.L.C. primarily marketed and sold the interests using nationwide cold-calling and offering packets (including a confidential information memorandum, joint venture agreement, questionnaires, and subscription/purchase documents).
- Joint venture agreements granted investors governance rights, including voting on major decisions, receiving information, calling meetings, and removing/replacing the managing venturer.
- The record included evidence that investors exercised some governance rights, including voting on proposals and removing/replacing managers in at least some ventures.
- The SEC sued in federal district court, alleging the interests were unregistered securities and asserting registration, fraud, and broker-related violations under the Securities Act and Exchange Act.
- The district court granted summary judgment for the SEC, concluding the interests were “investment contracts” and thus securities.
- Defendants appealed, disputing that the interests were securities as a matter of law.

## Issues

1. Whether the joint-venture interests were “investment contracts” and therefore “securities” under the federal securities laws.
2. Whether, applying Howey and the Williamson framework for joint-venture/general-partnership interests, the SEC was entitled to summary judgment on the ground that investors expected profits primarily from others’ managerial efforts.

## Decision

- The Fifth Circuit reversed the grant of summary judgment for the SEC and remanded.
- The court held that genuine disputes of material fact existed under each Williamson factor relevant to whether the interests were investment contracts.
- Because a reasonable factfinder could conclude investors had and exercised meaningful control, the SEC was not entitled to judgment as a matter of law on the securities classification issue.

## Legal Principles

- An “investment contract” requires an investment of money in a common enterprise with an expectation of profits derived from the efforts of others (Howey).
- Interests structured as general partnerships or joint ventures are presumptively not securities because holders ordinarily possess control; that presumption may be rebutted under Williamson.
- Under Williamson, the presumption can be overcome if: (1) the agreement effectively strips investors of meaningful power (akin to a limited partnership), (2) investors are so inexperienced that they cannot intelligently exercise their powers, or (3) investors are so dependent on a particular manager that they cannot replace the manager or otherwise exercise meaningful control.
- Whether Williamson’s conditions are met is commonly fact-intensive; conflicting evidence about contractual rights, actual exercise of governance, investor sophistication, and manager replaceability can preclude summary judgment.

## Conclusion

The Fifth Circuit held that disputed facts regarding investor control, investor sophistication, and managerial replaceability required resolution by a factfinder, reversing summary judgment and remanding for further proceedings on whether the joint-venture interests were securities.


Sec. & Exch. Comm’n v. Arcturus Corp., 928 F.3d 400 (5th Cir. 2019)