## Facts

- Robert Dillie controlled the Mid-America Foundation and marketed “charitable gift annuities” promising investors lifetime income, tax advantages, and an eventual charitable benefit.
- From 1996 to 2001, Mid-America raised about $55 million from over 400 annuity purchasers through financial planners and insurance agents who received transaction-based commissions.
- The program operated as a Ponzi scheme: new investor funds paid earlier annuity obligations, sales commissions, and Dillie’s personal expenses; with limited exceptions, no charitable contributions were made.
- After the scheme collapsed in 2001, the SEC filed a civil enforcement action, and the district court appointed Lawrence J. Warfield as receiver to marshal assets for defrauded investors.
- The receiver sued the selling agents to recover commissions and pursued federal securities-law theories, including sale of unregistered securities and acting as unregistered brokers or dealers.
- The district court concluded the annuities were “investment contracts” and thus securities; it also rejected reliance on the Philanthropy Protection Act because the defendants were paid commissions, and judgment was entered for the receiver.
- The selling agents appealed; the receiver cross-appealed on additional issues. The Ninth Circuit’s central focus was whether the annuities were investment contracts.

## Issues

1. Whether Mid-America’s charitable gift annuities were “investment contracts” and therefore “securities” under the Howey test.
2. Whether purchasers lacked an “expectation of profits” because of charitable intent or because the annuity’s actuarial present value could be less than the purchase payment.
3. Whether commission-paid sellers were exempt from broker-dealer registration requirements under the Philanthropy Protection Act of 1995 or related provisions.
4. Whether nationwide service of process under the federal securities laws supported personal jurisdiction over non-resident defendants.

## Decision

- The Ninth Circuit affirmed the judgment for the receiver in all material respects.
- The court held the charitable gift annuities were investment contracts and therefore securities.
- The court held the “expectation of profits” element was satisfied based on the objective economic reality and marketing promises of income and tax benefits, notwithstanding charitable features or present-value arguments.
- The court held the defendants were not exempt from broker-dealer registration because they received transaction-based commissions.
- The court held that, because the instruments were securities, the securities laws’ nationwide service of process provisions supported personal jurisdiction over non-resident defendants.

## 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 produced by the efforts of others.
- The “expectation of profits” inquiry turns on objective economic reality, including promised income streams and financial benefits, rather than solely the investor’s charitable motives.
- The existence of charitable branding or an intended charitable remainder does not prevent an instrument from being a security when the offering is structured and sold as an income-producing product.
- Exemptions tied to charitable fundraising activity do not protect commission-compensated sellers from broker-dealer registration when their compensation and role align with traditional brokerage activity.
- Once an instrument is a security, federal securities statutes authorizing nationwide service of process can supply personal jurisdiction over defendants with sufficient contacts to the United States.

## Conclusion

The Ninth Circuit treated Mid-America’s “charitable gift annuities” as securities because they were marketed and purchased as income-producing investments whose returns depended on the promoter’s management, rejected statutory defenses for commission-paid sellers, and sustained nationwide personal jurisdiction in the resulting securities action brought by the court-appointed receiver.


Warfield v. Alaniz, 569 F.3d 1015 (9th Cir. 2009)