I recall from the either the securities law or the corporations class taught by Cliff Hodge a section involving attempts to circumvent securities registration requirements by structuring something as other than a security. One involved an orange grove, where the orange trees were sold one at a time but what the promoter was really doing was selling investments in an orange farm.
As I recall it, the test for a security is, more or less, that someone is putting up money to earn money not through their own effort. A few moments in Westlaw (searching “wp(security) & “orange tree”") confirmed this distant memory:
The term ‘investment contract’ is undefined by the Securities Act or by relevant legislative reports. But the term was common in many state ‘blue sky’ laws in existence prior to the adoption of the federal statute and, although the term was also undefined by the state laws, it had been broadly construed by state courts so as to afford the investing public a full measure of protection. Form was disregarded for substance and emphasis was placed upon economic reality. An investment contract thus came to mean a contract or scheme for ‘the placing of capital or laying out of money in a way intended to secure income or profit from its employment.’ State v. Gopher Tire & Rubber Co., 146 Minn. 52, 56, 177 N.W. 937, 938. This definition was uniformly applied by state courts to a variety of situations **1103 where individuals were led to invest money in a common enterprise with the expectation that they would earn a profit solely through the efforts of the promoter or of some one other than themselves.
This all came to my mind reading about an offer being promoted on the Food52 website, where for a couple of years food writers Amanda Hesser and Merrill Stubbs have had a project of creating a community of recipe-sharers. In their store today, they are featuring the opportunity to invest in, or as they describe it, adopt a truffle tree in France. One puts up $225 (a savings of $74!) and one gets a tree that will harvest in 5 to 9 years. After the first year one pays a $69 annual maintenance charge. At year 6 the lucky ones (how sure a thing are truffle trees? I thought not) have invested $569 and will get their choice– either the cash proceeds of that first crop, or the first crop mailed to them.
I’m having trouble seeing how this isn’t “individuals… invest[ing] money in a common enterprise with the expectation that they would earn a profit solely through the efforts fo the promoter….” At least in exactly the sense that long-ago orange grove fit that definition.
Here’s the text of the offer:
Standard Truffle Tree Adoption
- First harvests generally arrive five to nine years from planting.
- Food52 Exclusive:
- First 10 food52 tree adopters receive a tree planted in 2006, for a 6-year head start!
- After first 10, food52 adopters receive a tree planted in 2009 for a 3-year head start!
- Initial adoption payment covers establishing the truffière, planting the tree, an A4 color photograph of their tree, an adoption certificate, and care for the first year.
- Following the first year, there is a $69 care and maintenance charge.
- Choose between the evergreen Holm Oak, and the white, deciduous Downy Oak.
- Adopted tree stands in a 4m x 5m plot and each adopter will own all the truffles harvested in their area.
- Adopter can elect to have truffles mailed to them or sold at market on their behalf with a check sent at the end of the season.
Instead of being able to go to a stockholders meeting, the Food52 offer holds out the prospect of traveling to France and staying in the bed and breakfast associated with the truffle orchard and picnicking under one’s tree.