## Facts

- Patrick Kirkland developed and sold interests in “senior triplex” real-estate projects in Florida, Georgia, and Texas from about 1999 to 2006, raising at least $59 million from investors.
- The triplex units were marketed as investment opportunities with promised high returns, including representations of profits in the range of roughly 23% to 55%.
- Sales presentations allegedly included claims of strong senior-tenant demand, including purported waiting lists and high call volume, while completed projects allegedly experienced low occupancy (about 34% or less) and investor losses.
- Investors entered rental-pooling arrangements under which rents from all units in a project were pooled and distributed to investors regardless of whether a particular unit was rented.
- Kirkland and his staff retained centralized control over development, marketing, and property management; investors had no meaningful managerial control.
- The offerings were not registered with the SEC.
- The SEC brought a civil enforcement action alleging violations of federal securities registration and antifraud provisions; the court previously entered injunctive relief and an asset freeze.
- On cross-motions for summary judgment, the court addressed whether the triplex program involved “securities,” and, based on that determination, whether the SEC established liability.

## Issues

1. Whether the senior-triplex offerings, including rental-pooling and management arrangements, constituted an “investment contract” and therefore a “security” under the Securities Act of 1933.
2. If the offerings were securities, whether Kirkland violated federal securities laws by offering and selling unregistered securities and by making material misrepresentations or omissions in connection with the offers and sales.

## Decision

- The court held the senior-triplex offerings were “securities” because they were investment contracts under the Howey test.
- The court granted the SEC’s motion for summary judgment and denied Kirkland’s motion.
- Based on the securities determination and the record, the court found violations of the registration provisions and sustained the SEC’s antifraud claims on summary judgment.
- The court entered permanent injunctive relief against Kirkland following the summary judgment ruling.

## Legal Principles

- An “investment contract” exists when there is (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits to be derived from the efforts of others.
- Courts analyze the “economic reality” of the entire scheme; transfer of a real-property interest does not bar application of federal securities laws when the transaction is packaged as a passive profit-making program.
- A “common enterprise” may be shown through horizontal commonality where investor interests or profits are pooled, including via rental-pooling arrangements that tie investor returns to the collective performance of the project.
- The “efforts of others” element is satisfied when investors lack meaningful control and expected profits depend on the promoter’s essential managerial and entrepreneurial efforts.
- Offering or selling securities without an effective registration statement violates Securities Act §§ 5(a) and 5(c) absent an applicable exemption; material misstatements or omissions in connection with offers and sales support antifraud liability.

## Conclusion

The court treated the triplex program as a promoter-managed, pooled-income investment scheme rather than a simple real-estate sale, held it was an investment contract under Howey, and entered summary judgment and injunctive relief for the SEC for unregistered offering and fraud-based violations.


S.E.C. v. Kirkland, 521 F. Supp. 2d 1281 (M.D. Fla. 2007)