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    Securities and Exchange Commission v. Prosperity. Com, Inc.

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    Prosperity.com, Inc. (PCI) operated a multi-level marketing scheme where buyers received commissions for referring new buyers. The scheme was complained about to the Securities and Exchange Commission (SEC) for not being properly registered. The SEC ruled the scheme was an unregistered investment contract. However, the Court of Appeals found that PCI's scheme did not meet the Howey Test for an investment contract as clients were not making investments, but rather engaging in network marketing to earn commissions from sales to referrals. The Supreme Court affirmed it was not an investment contract requiring SEC registration.

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    Securities and Exchange Commission v. Prosperity. Com, Inc.

    Uploaded by

    CheChe
    2K views1 page
    Prosperity.com, Inc. (PCI) operated a multi-level marketing scheme where buyers received commissions for referring new buyers. The scheme was complained about to the Securities and Exchange Commission (SEC) for not being properly registered. The SEC ruled the scheme was an unregistered investment contract. However, the Court of Appeals found that PCI's scheme did not meet the Howey Test for an investment contract as clients were not making investments, but rather engaging in network marketing to earn commissions from sales to referrals. The Supreme Court affirmed it was not an investment contract requiring SEC registration.

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    Securities and Exchange Commission v. Prosperity. com, Inc.

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    Prosperity.com, Inc. (PCI) operated a multi-level marketing scheme where buyers received commissions for referring new buyers. The scheme was complained about to the Securities and Exchange Commission (SEC) for not being properly registered. The SEC ruled the scheme was an unregistered investment contract. However, the Court of Appeals found that PCI's scheme did not meet the Howey Test for an investment contract as clients were not making investments, but rather engaging in network marketing to earn commissions from sales to referrals. The Supreme Court affirmed it was not an investment contract requiring SEC registration.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    2K views1 page

    Securities and Exchange Commission v. Prosperity. Com, Inc.

    Uploaded by

    CheChe
    Prosperity.com, Inc. (PCI) operated a multi-level marketing scheme where buyers received commissions for referring new buyers. The scheme was complained about to the Securities and Exchange Commission (SEC) for not being properly registered. The SEC ruled the scheme was an unregistered investment contract. However, the Court of Appeals found that PCI's scheme did not meet the Howey Test for an investment contract as clients were not making investments, but rather engaging in network marketing to earn commissions from sales to referrals. The Supreme Court affirmed it was not an investment contract requiring SEC registration.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    Securities and Exchange Commission

    v.
    Prosperity. com, Inc.
    G.R. No. 164197
    January 25, 2012

    Facts:

    Prosperity.com, Inc. (PCI) came up with a scheme wherein a buyer of its services gets
    incentives and commissions by sponsoring and referring down-line buyers to PCI. This scheme
    was patterned after another company that stopped operations after being enjoined by SEC.
    Aggrieved, elements of the other company filed a complaint against PCI with SEC, where the
    latter held that PCI’s scheme constitutes an investment contract, which should have been
    registered with the same. Aggrieved, PCI filed a petition for certiorari with CA, which held that
    PCI’s scheme is not an investment contract following the Howey Test, which needed to be
    registered with SEC. Hence, this petition.

    Issue: Whether or not PCI’s scheme constitutes an investment contract that requires registration.

    Ruling: No.

    Investment contracts are “securities” that have to be registered with the SEC before they
    can be distributed and sold; a contract, transaction, or scheme where a person invests his money
    in a common enterprise and is led to expect profits primarily for the efforts of others. Following
    the Howey Test, for an investment contract to exist, the following elements must concur: 1) a
    contract, transaction, or scheme; 2) an investment of money; 3) investment is made in a common
    enterprise; 4) expectation of profits; and 5) profits arising primarily from the efforts of others. In
    this case, PCI’s clients do not make such investments; rather they are engage in network
    marketing, a scheme adopted by companies for getting people to buy their products where the
    buyer can become a down-line seller, who earns commissions from purchases made by new
    buyers whom he refers to the person who sold the product to him, is not an investment contract.
    The commissions, interest in real estate, and insurance coverage are incentives to down-line
    sellers to bring in other customers which can hardly be regarded as profits from investment of
    money under the Howey Test.

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