As used in this chapter, the term:
(Code 1981, §10-5-2, enacted by Ga. L. 2008, p. 381, § 1/SB 358; Ga. L. 2017, p. 774, § 10/HB 323; Ga. L. 2020, p. 156, § 8/SB 462.)
The 2017 amendment, effective May 9, 2017, part of an Act to revise, modernize, and correct the Code, substituted "the 'Georgia Securities Act of 1973,"' for "the 'Georgia Securities Act of 1973'," in the middle of paragraph (25).
The 2020 amendment, effective June 30, 2020, substituted "installment loan" for "industrial loan" preceding "company" in division (7)(B)(iii). See the Editor's notes for applicability.
Cross references.- Designation of Secretary of State as commissioner of securities, § 10-5-10.
Code Commission notes.- Pursuant to Code Section 28-9-5, in 2008, "July 1, 2009" was substituted for "the effective date of this chapter" in paragraph (25).
Editor's notes.- Ga. L. 2020, p. 156, § 10/SB 462, not codified by the General Assembly, provides that: "This Act shall apply to all installment loan agreements entered into on and after July 1, 2020."
Law reviews.- For article on the definition of a security in light of the "Georgia Securities Act of 1973" and the need for maximizing investor protection, see 30 Emory L.J. 73 (1981). For article, "Uniformity under the Securities Laws: Regulation D and the New Georgia Uniform Limited Offering Exemption," see 19 Ga. St. B. J. 74 (1982). For annual survey of law of business associations, see 56 Mercer L. Rev. 77 (2004). For survey of 11th Circuit securities regulation cases, see 56 Mercer L. Rev. 1341 (2005). For article, "The Georgia Uniform Securities Act of 2008: An Analysis of Significant Changes to Georgia's Blue Sky Law," see 14 (No. 6) Ga. St. B. J. 18 (2009). For note, "Regulation of the Franchise as a Security," see 19 J. of Pub. L. 105 (1970). For note discussing the classification of pyramid marketing scheme contracts as securities prior to enactment of Georgia Securities Act of 1973, see 21 J. of Pub. L. 445 (1972). For note discussing standards used by Georgia courts to define securities, and their application, see 31 Mercer L. Rev. 333 (1979). For note, "The Economic Realities of Condominium Registration Under the Securities Act of 1933," see 19 Ga. L. Rev. 747 (1984). For comment, the purchase of all the shares of stock of a business is not the purchase of a "security" within the meaning of the Federal Securities Act of 1933 or the Georgia Securities Act of 1973, see 30 Emory L.J. 1212 (1981).
JUDICIAL DECISIONSANALYSIS
General Consideration
Editor's notes.
- In light of the similarity of the statutory provisions, decisions under former Ga. L. 1920, p. 250, Ga. L. 1957, p. 134, as amended, former Code 1933, § 97-102, former O.C.G.A. § 10-5-2, and under 15 U.S.C. § 77(b), which were subsequently repealed but were succeeded by provisions in this Code section, are included in the annotations for this Code section.
Commodity futures dealer not a "dealer".
- One who deals in commodity futures is not a "dealer" in securities. Monarch Co. v. Weis, 86 Ga. App. 7, 70 S.E.2d 600 (1952) (decided under former Ga. L. 1920, p. 250, as amended).
"Issuers".
- Persons who procure contracts of subscription to the stock of a proposed corporation not in esse but which may be organized in the future are not "issuers" of such stock within the intent and meaning of that term as defined in the securities law. Felton v. Highlands Hotel Co., 165 Ga. 598, 141 S.E. 793, 57 A.L.R. 987 (1928) (decided under former Ga. L. 1920, p. 250).
Cited in Hamilton Bank & Trust Co. v. Holliday, 469 F. Supp. 1229 (N.D. Ga. 1979); Hirsch v. Equilateral Assocs., 245 Ga. 373, 264 S.E.2d 885 (1980); Novatex Sales, Inc. v. Prince, 159 Ga. App. 559, 284 S.E.2d 65 (1981); Jorges v. Griffin, 161 Ga. App. 439, 288 S.E.2d 356 (1982); Nicholson v. Harris, 179 Ga. App. 35, 345 S.E.2d 63 (1986); Turem v. Sinowski & Jones, 195 Ga. App. 829, 395 S.E.2d 60 (1990); Haupt v. State, 290 Ga. App. 616, 660 S.E.2d 383 (2008); Golden Atlanta Site Dev., Inc. v. Tilson, 299 Ga. App. 646, 683 S.E.2d 166 (2009).
"Sale" or "Sell"
Term "sale" or "sell" is not limited to technical common-law sales or transactions ordinarily governed by the commercial law of sales. Peoples Bank v. North Carolina Nat'l Bank, 139 Ga. App. 405, 228 S.E.2d 334 (1976) (construing similar federal provision, 15 U.S.C. § 77b(3)).
Promissory note was a security.
- Borrowers did not commit fraud upon a lender; the borrowers advised the lender that the lender's $150,000 would fund the corporation until the borrowers secured $1.5 million to build the necessary greenhouses, and the borrowers payment of salaries to themselves of $600 per week each was not inconsistent with the borrowers stated purpose. Because there was no intent to defraud, the borrowers were not liable for securities fraud under O.C.G.A. § 10-5-50, although the promissory note was a security under O.C.G.A. § 10-5-2. Sims v. Natural Prods. of Ga., LLC, 337 Ga. App. 20, 785 S.E.2d 659 (2016).
Payment may be made in any medium which the payor and the payee regard as equivalent to money, such as goods, chattels, securities, lands, services, credits, or bank notes. Utzman v. Caribbean & S.E. Dev. Corp., 107 Ga. App. 56, 129 S.E.2d 62 (1962) (decided under former Ga. L. 1957, p. 134, as amended).
Cancelling or assuming debt as payment.
- Payment may be made by cancelling an existing debt owed one by the creditor of another, whether by request or compulsion, or by rendering an account which makes the person rendering it liable for another's debt. Utzman v. Caribbean & S.E. Dev. Corp., 107 Ga. App. 56, 129 S.E.2d 62 (1962) (decided under former Ga. L. 1957, p. 134, as amended).
Determining whether "sale" occurred in Georgia.
- Former Code 1933, § 102-108 did not limit the application of the statutory security provisions; thus, whether a "sale" within the meaning of the statutory security provisions occurred in Georgia must be decided on basic principles. Allen v. Smith & Medford, Inc., 129 Ga. App. 538, 199 S.E.2d 876 (1973) (decided under former Ga. L. 1957, p. 134, as amended).
Although one defendant testified that the plaintiff agreed to lend $50,000.00 in Florida, the agreement which concerned the debenture or security sets forth that the agreement was entered into in Atlanta, Georgia, and that the plaintiff, who resided in Georgia, executed the contract in Georgia and received the stock in Georgia; thus, there was a "sale" in Georgia. Allen v. Smith & Medford, Inc., 129 Ga. App. 538, 199 S.E.2d 876 (1973) (decided under former Ga. L. 1957, p. 134, as amended).
After Texas residents sent a Georgia resident letters, brochures and other materials regarding a cattle feeding and sales investment program and, during a telephone conversation, solicited a cash downpayment from the Georgia resident, who then transferred the payment from the Georgia resident's bank account, these contacts were sufficient to establish a "sale" within the state. Seale v. Miller, 698 F. Supp. 883 (N.D. Ga. 1988);(decided under former O.C.G.A. § 10-5-2).
"Salesman"
Sufficiency of evidence.
- Whether defendant was a "dealer" under former O.C.G.A. § 10-5-3 was immaterial since the evidence at trial was sufficient for a jury to find that the defendant was a "salesman" pursuant to paragraph (a)(25) of former O.C.G.A. § 10-5-2. Greenhill v. State, 199 Ga. App. 218, 404 S.E.2d 577, cert. denied, 199 Ga. App. 906, 404 S.E.2d 557 (1991);(decided under former O.C.G.A. § 10-5-2).
"Security"
Treatment similar to federal Acts.
- Treatment extended to notes and securities, while not precisely the same under Georgia law and the federal Acts, is virtually identical. Blau v. Redmond, 143 Ga. App. 897, 240 S.E.2d 273 (1977);(decided under former Code 1933, § 97-102).
Test for determining whether an investment is a security is the same under both the former Georgia Securities Act and the federal securities laws. Eberhardt v. Waters, 901 F.2d 1578 (11th Cir. 1990);(decided under former O.C.G.A. § 10-5-2).
"Any note" and "evidence of indebtedness".
- Ordinary terms of "any note" or "evidence of indebtedness" in paragraph (a)(19) of this section are self-defining and require no further definition. Peoples Bank v. North Carolina Nat'l Bank, 139 Ga. App. 405, 228 S.E.2d 334 (1976) (holding note a "security") (construing similar provisions of 15 U.S.C. § 77b(1)); Blau v. Redmond, 143 Ga. App. 897, 240 S.E.2d 273 (1977);(decided under former Code 1933, § 97-102).
To determine whether stock constitutes a "security" under either the Georgia Securities Act of 1973, former O.C.G.A. § 10-5-1 et seq., or the federal securities acts, it is necessary to apply the test in Landreth Timber Co. v. Landreth, 471 U.S. 681, 105 S. Ct. 2297, 85 L. Ed. 692 (1985), which is whether the stock "bears such characteristics usually associated with common stock that a purchaser justifiably may assume that appropriate securit[ies] laws apply." Cohen v. William Goldberg & Co., 202 Ga. App. 172, 413 S.E.2d 759 (1991), cert. denied, 202 Ga. App. 905, 413 S.E.2d 759, modified on other grounds, 262 Ga. 606, 423 S.E.2d 231 (1992), vacated on other grounds, 207 Ga. App. 174, 428 S.E.2d 117 (1993);(decided under former O.C.G.A. § 10-5-2).
Appropriate test to be employed in resolving issues of whether particular stock is a security is whether the stock bears such characteristics usually associated with common stock that a purchaser justifiably may assume that appropriate security laws apply. Cohen v. William Goldberg & Co., 262 Ga. 606, 423 S.E.2d 231 (1992);(decided under former O.C.G.A. § 10-5-2).
In determining whether stock is a security, if, and only if, the stock does not meet the statutory definition under either the Georgia or federal securities acts, the next inquiry should be whether the stock meets the Howey economic reality test as tailored by Tech Resources to resolve issues concerning "investment contracts" and any "instrument commonly known as a 'security.'" Cohen v. William Goldberg & Co., 262 Ga. 606, 423 S.E.2d 231 (1992) (decided under former O.C.G.A. § 10-5-2).
Four tests are applicable in determining whether a transaction falls within the definition of "security": the "Howey" test (Securities & Exch. Comm'n v. W.J. Howey Co., 328 U.S. 293, 66 S. Ct. 1100, 90 L. Ed. 1244 (1946)); the "Joiner" test (Securities & Exch. Comm'n v. C.M. Joiner Leasing Corp., 320 U.S. 344, 64 S. Ct. 120, 88 L. Ed. 88 (1943)); the "Risk Capital" test (Silver Hills Country Club v. Sobieski, 55 Cal. 2d 811, 13 Cal. Rptr. 186, 361 P.2d 906 (1961)); and the "Managerial Efforts" test (Securities & Exch. Comm'n v. Glenn W. Turner Enters., Inc., 474 F.2d 476 (9th Cir. 1973)). Jaciewicki v. Gordarl Assocs., 132 Ga. App. 888, 209 S.E.2d 693 (1974) (decided under former Ga. L. 1957, p. 134, as amended); D.K. Properties, Inc. v. Osborne, 143 Ga. App. 832, 240 S.E.2d 293 (1977) (decided under former Code 1933, § 97-102).
A factual situation which falls within the framework of either the "Howey," "Joiner," "Risk Capital," or "Managerial Efforts" test, or any combination thereof, will afford a sufficient basis for a finding that a "security" is involved. Jaciewicki v. Gordarl Assocs., 132 Ga. App. 888, 209 S.E.2d 693 (1974) (decided under former Ga. L. 1957, p. 134, as amended).
Applying the stock characterization test, shares of stock were securities when stockholders were entitled to receive dividends, the stock was negotiable, the shares could be pledged or hypothecated, the by-laws provided that stockholders were entitled to one vote per share, and the stock apparently had the capacity to increase in value. Bell v. Sasser, 238 Ga. App. 843, 520 S.E.2d 287 (1999) (decided under former O.C.G.A. § 10-5-2).
Neither restrictions on the negotiability of stock in a closely held corporation nor its unregistered status negated the stock's character as a security. Cox v. Edelson, 243 Ga. App. 5, 530 S.E.2d 250 (2000) (decided under former O.C.G.A. § 10-5-2).
Policy to protect investor when success depends on promoter's efforts.
- Basic policy behind all the tests for a "security" is to protect the investor with the shield of the securities laws when the promoter or syndicator puts forth the essential managerial efforts which affect the failure or success of the enterprise. D.K. Properties, Inc. v. Osborne, 143 Ga. App. 832, 240 S.E.2d 293 (1977) (decided under former Code 1933, § 97-102).
Form should be disregarded for substance and emphasis should be on economic reality when making a determination as to whether or not an instrument is a security. Tech Resources, Inc. v. Estate of Hubbard, 246 Ga. 583, 272 S.E.2d 314 (1980); Cocklereece v. Moran, 532 F. Supp. 519 (N.D. Ga. 1982) (decided under former Code 1933, § 97-102).
Label used on instrument not determinative.
- Label placed on the instrument by the parties or by the courts does not determine whether the instrument is a "security." Instead, the characteristics of the instrument and the underlying economic reality are the significant factors for a court to consider in classifying an instrument as a "security." Dunwoody Country Club of Atlanta, Inc. v. Fortson, 243 Ga. 236, 253 S.E.2d 700 (1979); Redmond v. Blau, 153 Ga. App. 395, 265 S.E.2d 329 (1980) (decided under former Code 1933, § 97-102).
As there was no dispute that agreements and notes defendant provided the defendant's victims in exchange for money were investments and that the victims relied on the defendant to manage the investments and to provide a return on the investments, the instruments were "securities" within the meaning of Georgia's blue sky law; that the amount of expected return was fixed was immaterial. Rasch v. State, 260 Ga. App. 379, 579 S.E.2d 817 (2003) (decided under former O.C.G.A. § 10-5-2).
Expectation of profits from efforts of others.
- Touchstone of a "security" is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. Dunwoody Country Club of Atlanta, Inc. v. Fortson, 243 Ga. 236, 253 S.E.2d 700 (1979) (decided under former Code 1933, § 97-102).
In order for a transaction to constitute a securities transaction under the law, there must be an investment, a reasonable expectation of profits, and a reliance on the management of another party to bring about the profits. Tech Resources, Inc. v. Estate of Hubbard, 246 Ga. 583, 272 S.E.2d 314 (1980) (decided under former Code 1933, § 97-102).
In determining whether a transaction constitutes a "security," the courts focus primarily upon one issue: do persons other than the investors provide the essential managerial efforts from which the investors expect profits? If the answer to that question is in the affirmative, then, for the protection of the investor, who is thereby seen to lack control over the investor's investment, the courts have found the transaction to be a "security." D.K. Properties, Inc. v. Osborne, 143 Ga. App. 832, 240 S.E.2d 293 (1977) (decided under former Code 1933, § 97-102).
Stock of closely-held corporation.
- Since restrictions on negotiability of stock were usual and customary for closely-held corporations, the restrictions did not negate the stock's character as a security. Cohen v. William Goldberg & Co., 262 Ga. 606, 423 S.E.2d 231 (1992) (decided under former O.C.G.A. § 10-5-2).
Unregistered stock.
- Unregistered status of stock in a closely-held corporation did not negate the stock's character as a security since the Georgia and federal securities acts contemplate that stock may be a "security" and yet be unregistered. Cohen v. William Goldberg & Co., 262 Ga. 606, 423 S.E.2d 231 (1992) (decided under former O.C.G.A. § 10-5-2).
Limited partnership interests are explicitly included in the definitions of "security." Kleiner v. Silver, 137 Ga. App. 560, 224 S.E.2d 508 (1976) (decided under former Code 1933, § 97-102).
"Unusual instruments".
- Stock not meeting the definition of a security under the test in Landreth Timber Co. v. Landreth, 471 U.S. 681, 105 S. Ct. 2297, 85 L. Ed. 2d 692 (1985), may otherwise come within the Georgia or federal securities acts if the stock qualifies as one of the "unusual instruments" not easily characterized as "securities." Cohen v. William Goldberg & Co., 202 Ga. App. 172, 413 S.E.2d 759 (1991), cert. denied, 202 Ga. App. 905, 413 S.E.2d 759, modified on other grounds, 262 Ga. 606, 423 S.E.2d 231 (1992), vacated on other grounds, 207 Ga. App. 174, 428 S.E.2d 117 (1993) (decided under former O.C.G.A. § 10-5-2).
If investors control decision essential for profit, no sale of securities.
- When the investors have control over the essential decision from which the investors expect profits to flow, the scheme does not involve the sale of securities. D.K. Properties, Inc. v. Osborne, 143 Ga. App. 832, 240 S.E.2d 293 (1977) (decided under former Code 1933, § 97-102).
Restrictive covenants and pledge of shares did not vest control in another.
- When buyer proposed to purchase business of coal mining companies and to operate and control it as its own and to assume certain financial obligations of the companies, existence of restrictive financial covenants in the agreement and pledge of shares as security for performance of covenants did not vest significant managerial control in anyone other than the purchaser and the sale was not a security transaction. Tech Resources, Inc. v. Estate of Hubbard, 246 Ga. 583, 272 S.E.2d 314 (1980) (decided under former Code 1933, § 97-102).
Test applies to "investment contract".
- Test of whether there is an "investment contract" is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others. Georgia Mkt. Ctrs., Inc. v. Fortson, 225 Ga. 854, 171 S.E.2d 620 (1969), commented on in 21 Mercer L. Rev. 715 (1970) (decided under former Ga. L. 1957, p. 134, as amended).
An "investment contract" is a security if the scheme involves an investment of money in a common enterprise in which profits are to come solely from the efforts of others. Goldsmith v. American Food Servs., Inc., 123 Ga. App. 353, 181 S.E.2d 95 (1971) (decided under former Ga. L. 1957, p. 134, as amended); Brown v. Computer Credit Sys., 128 Ga. App. 429, 197 S.E.2d 165 (1973) (decided under former Ga. L. 1957, p. 134, as amended).
Elements of an "investment contract" are: (a) the investment of money (b) in a common enterprise (c) with profits to come solely from the efforts of others. The Georgia courts accept this test for an investment contract for purposes of the security law. Plunkett v. Francisco, 430 F. Supp. 235 (N.D. Ga. 1977) (decided under former Ga. L. 1957, p. 134, as amended).
Three elements of an investment contract are: (1) an investment of money; (2) in a common enterprise; and (3) an expectation of profit solely from the efforts of others. Eberhardt v. Waters, 901 F.2d 1578 (11th Cir. 1990) (decided under former O.C.G.A. § 10-5-2).
Sale and lease-back contracts for payphones were found to be investment contracts within the definition of securities pursuant to O.C.G.A. § 10-5-2(a)(26) as the buyer invested money for the purchase, the concept was packaged as an investment venture by the seller, and the purchaser expected to receive a fixed monthly income as a return on each payphone, which represented a fixed return on the purchaser's investment. Garvin v. Sec'y of State, 266 Ga. App. 66, 596 S.E.2d 166 (2004) (decided under former O.C.G.A. § 10-5-2).
Defendant was properly convicted of violating the Georgia Securities Act of 1973 because the evidence authorized the jury to find that all three prongs of the test used to determine whether a particular scheme was an investment contract under the Securities Act, O.C.G.A. § 10-5-2(a)(26), were satisfied; the victims parted with the victims' money in anticipation of investment gains, there was a common enterprise because the victims' funds were pooled to reach the minimum amounts for participation set by the defendant, and the expectation of profits rested solely on the efforts of others. Hicks v. State, 315 Ga. App. 779, 728 S.E.2d 294 (2012).
Investment met Howey "economic reality" test.
- Plaintiff's payment for a 10% interest in a closely held corporation was an "investment contract" under the Howey "economic reality" test. Huggins v. Chapin, 227 Ga. App. 340, 489 S.E.2d 109 (1997) (decided under former O.C.G.A. § 10-5-2).
Investment arrangement involving the sale of cattle embryos, based on the process of artificially inseminating superovulated "donor cows" for reproduction, constituted the sale of a security under Georgia law. Eberhardt v. Waters, 901 F.2d 1578 (11th Cir. 1990) (decided under former O.C.G.A. § 10-5-2).
"Security" may include transaction purporting to be real estate sale.
- Transaction which purports only to be a sale of real estate can, when the economic realities of the transaction are examined, be determined to be a security. The rule which has developed is that any investment will be deemed an "investment contract" and a "security" if the investor's return is essentially dependent upon the efforts of the syndicator or an affiliate. Fortier v. Ramsey, 136 Ga. App. 203, 220 S.E.2d 753 (1975) (decided under former Ga. L. 1957, p. 134, as amended).
Franchise agreement is not a "security" within the meaning of the securities law if the investor is entitled to no return under the agreement except through the investor's own efforts. Brown v. Computer Credit Sys., 128 Ga. App. 429, 197 S.E.2d 165 (1973) (decided under former Ga. L. 1957, p. 134, before it was amended by Ga. L. 1970, p. 450).
Redeemable membership certificate is a certificate of indebtedness, but the certificate of indebtedness does not represent an "investment" within the meaning of the securities law when the certificate creates no expectation of profit because the certificate bears no interest, cannot appreciate, and cannot be pledged or assigned. Dunwoody Country Club of Atlanta, Inc. v. Fortson, 243 Ga. 236, 253 S.E.2d 700 (1979) (decided under former Code 1933, § 97-102).
Defendant properly convicted for violating Securities Act.
- Defendant was properly convicted of violating the Georgia Securities Act of 1973 because the evidence authorized the jury to find that all three prongs of the test used to determine whether a particular scheme was an investment contract under the Securities Act, O.C.G.A. § 10-5-2(a)(26), were satisfied; the victims parted with the victims' money in anticipation of investment gains, there was a common enterprise because the victims' funds were pooled to reach the minimum amounts for participation set by the defendant, and the expectation of profits rested solely on the efforts of others. Hicks v. State, 315 Ga. App. 779, 728 S.E.2d 294 (2012).
Pooled money was security.
- Trial court did not err in holding that the three notes at issue were securities under Georgia law because the funds pooled from the investors in the three commercial ventures had to reach minimum amounts for participation, which indicated an investment in a common enterprise, and the evidence showed that the investors expected their profit from the financial transactions to be obtained through defendants' managerial efforts. Cushing v. Cohen, 323 Ga. App. 497, 746 S.E.2d 898 (2013).
OPINIONS OF THE ATTORNEY GENERALANALYSIS
General Consideration
Editor's notes.
-.
In light of the similarity of the statutory provisions, opinions under former Ga. L. 1957, p. 134, as amended, former Code 1933, § 97-102, and former O.C.G.A. § 10-5-2, which were subsequently repealed but were succeeded by provisions in this Code section, are included in the annotations for this section.
New York license to sell securities is not valid in Georgia. 1969 Op. Att'y Gen. No. 69-102 (decided under former Ga. L. 1957, p. 134, as amended).
"Dealer" and "Salesperson"
"Commission" construed broadly.
- Term "commission," particularly when further expanded to include any remuneration paid related to the sale of securities, should be given an expansive reading. 1974 Op. Att'y Gen. No. 74-75 (decided under former Code 1933, § 97-102).
"Dealer" or "salesperson" not limited to one receiving explicit commission.- General partner or executive officer of a real estate syndication should not be excluded from the definition of "salesperson" or "dealer" merely because the partner or officer receives compensation or profit in the form of a profit on sales to the syndication, a real estate brokerage commission, a management fee, or some other form which is not an explicit commission for the sale of securities. 1974 Op. Att'y Gen. No. 74-75 (decided under former Code 1933, § 97-102).
"Sale" or "Sell"
Guarantee of corporate indebtedness.
- Transaction under which a person undertakes to guarantee corporate indebtedness in consideration for the right to receive future corporate profits is a "sale" of a security governed by the statutory provisions on securities. 1973 Op. Att'y Gen. No. 73-177 (decided under former Ga. L. 1957, p. 134, as amended).
"Security"
Exact classification of instrument not necessary.
- It is not necessary that an instrument be susceptible to exact classification coextensive with one or more of the incremental clauses of paragraph (a)(19) of this section and, in addition, since securities regulation is a function of substance, one should hesitate to hand down any conclusive, all-purpose formulae. 1973 Op. Att'y Gen. No. 73-25 (decided under former Ga. L. 1957, p. 134, as amended).
"Investment contract" involves efforts of another.- If the success of the investment is essentially dependent upon the efforts of the seller or some third person, the security being sold is an "investment contract." 1974 Op. Att'y Gen. No. 75-153 (decided under former Code 1933, § 97-102).
"Investment contract" may involve management of land.- "Investment contract" includes many situations when investors are offered land in such a way that its value is dependent on management by others. 1973 Op. Att'y Gen. No. 73-25 (decided under former Ga. L. 1957, p. 134, as amended).
Agreement to buy land as tenants in common.- An agreement to purchase specifically identified parcels of land which purchasers are to hold as tenants in common with the hope of increase in price is not per se a "security." 1971 Op. Att'y Gen. No. U71-118 (decided under former Ga. L. 1957, p. 134, as amended).
If the purchasers of land are passive in the operation, and depend primarily upon the efforts of promoters of the enterprise for their profits, the transaction may well constitute the sale of a "security." 1971 Op. Att'y Gen. No. U71-118 (decided under former Ga. L. 1957, p. 134, as amended).
Real estate syndication anticipating profits from syndicator's efforts.- Any real estate syndication that is structured or marketed in such a way that the investor anticipates that the investor will realize returns based on the efforts or expertise of the syndicator or some affiliate is a "security". 1974 Op. Att'y Gen. No. 74-75 (decided under former Code 1933, § 97-102).
Limited partnership interest.- Offering for sale of limited partnerships constitutes the offering for sale of a "security." 1969 Op. Att'y Gen. No. 69-328 (decided under former Ga. L. 1957, p. 134, as amended).
Limited partnership interest is explicitly defined to be a "security" by the securities law. 1974 Op. Att'y Gen. No. 74-75 (decided under former Code 1933, § 97-102).
Investment club interest.- If the formation of an investment club were essentially the same as that for a limited partnership, such an interest would be a security. 1969 Op. Att'y Gen. No. 69-328 (decided under former Ga. L. 1957, p. 134, as amended).
Travelers checks and money orders deemed "securities".- "Travelers check," "money order," or "draft," or any similar instrument by whatever name called, sold, or offered for sale to the public through retail outlets for a consideration or fee over and above its face value, which instrument may be later endorsed and cashed by the purchaser at another retail outlet or endorsed by the purchaser to another person for the payment of bills or other purposes are "securities" within the meaning of the securities law and are subject to regulation and control by the commissioner of securities. 1957 Op. Att'y Gen. p. 233 (decided under former Ga. L. 1957, p. 134).
Franchise agreements.- In every instance when the franchisor is thinly capitalized or so under-capitalized as to require franchisee fees in order to be able to fulfill its obligations to its franchisees, the franchise agreements constitute "securities" within the purview of the securities law. 1969 Op. Att'y Gen. No. 69-471 (decided under former Ga. L. 1957, p. 134, as amended).
Securities coverage is not avoided by simply providing franchisor with adequate capital. 1969 Op. Att'y Gen. No. 69-471 (decided under former Ga. L. 1957, p. 134, as amended).
When, because of its newness, a franchising system is necessarily preorganizational as a matter of fact, then its franchising agreements constitute preorganization certificates and are "securities" within the meaning of the securities law. 1969 Op. Att'y Gen. No. 69-471 (decided under former Ga. L. 1957, p. 134, as amended).
All franchise systems however capitalized are susceptible to securities regulation until such time as the franchise is so well established as a system that the success or failure of an individual franchise is not disproportionately keyed to the success or failure of other franchisees; either the franchisor will have to provide a sufficient number of franchisor-owned and operated outlets to establish the system as a going enterprise without dependence upon the individual activities of the franchisee's cofranchisors or the franchisor will have to comply with the registration requirements of the securities law. 1969 Op. Att'y Gen. No. 69-471 (decided under former Ga. L. 1957, p. 134, as amended).
Club memberships deemed securities when promoter seeks profit.- When club property will be the chief capital asset of a recreational program conducted by the developer for profit, and the members are asked to allow a business to use their capital without allowing the members a return on the business, and they are required to supply operating capital, because they are obligated to pay dues assessments, the proposed memberships are securities; they are not exempt as securities of a nonprofit corporation because a substantial purpose of the enterprise is profit for the promoter. 1973 Op. Att'y Gen. No. 73-25 (decided under former Ga. L. 1957, p. 134, as amended).
Use of proceeds to develop common property.- If the transaction otherwise constitutes a security, it does not matter that proceeds were not used to develop the common facility. 1973 Op. Att'y Gen. No. 73-25 (decided under former Ga. L. 1957, p. 134, as amended).
Condominium with rental pool feature.- Condominium, when combined with rental pool feature, constitutes "security" as defined by this section. 1973 Op. Att'y Gen. No. 73-100 (decided under former Ga. L. 1957, p. 134, as amended).
Sale of time-sharing units in a condominium when coupled with a rental pool or other profit-sharing arrangement constitutes a "security", unless exempt, must be registered pursuant to the statutory provisions on securities; any person offering for sale or selling such securities that are subject to registration must register as a dealer, limited dealer, salesperson, or limited salesperson unless such a person is a real estate broker or salesperson licensed to sell real estate in Georgia. 1976 Op. Att'y Gen. No. 76-75 (decided under former Code 1933, § 97-102).
Guaranteeing corporate indebtedness.- Transaction under which a person undertakes to guarantee corporate indebtedness in consideration for the right to receive future corporate profits may be a sale of "security" governed by the statutory provisions on securities. 1973 Op. Att'y Gen. No. 73-177 (decided under former Ga. L. 1957, p. 134, as amended).
Transaction under which a corporation would obtain the guarantees of strangers on the corporation's loans in exchange for a percentage of profits in a development for which they guarantee the loan would constitute a sale of a "security". 1973 Op. Att'y Gen. No. 73-177 (decided under former Ga. L. 1957, p. 134, as amended).
Guaranty of a corporate loan by a stockholder if the guarantor expected no direct return from the guaranty, but only the indirect benefit of the increase in value of the corporation should the project be successful and the loan repaid would not constitute the sale of a security. 1973 Op. Att'y Gen. No. 73-177 (decided under former Ga. L. 1957, p. 134, as amended).
Typical scotch whiskey investment is "security." 1973 Op. Att'y Gen. No. 73-187 (decided under former Ga. L. 1957, p. 134, as amended).
Notes given in commercial transaction.- Notes given in an essentially commercial transaction between a payor and a payee are not subject to the securities law. 1974 Op. Att'y Gen. No. 74-153 (decided under former Code 1933, § 97-102).
Sales of notes or mortgages will be subject to the securities law if the transaction, as a matter of economic reality, is an investment. 1974 Op. Att'y Gen. No. 74-153 (decided under former Code 1933, § 97-102).
Variable annuity contract is subject to regulation as "security." 1962 Op. Att'y Gen. p. 448 (decided under former Ga. L. 1957, p. 134, prior to its amendment by Ga. L. 1969, p. 722).
"Security" does not include variable annuity contracts provided for and regulated under the insurance law. 1970 Op. Att'y Gen. No. 70-22 (decided under former Ga. L. 1957, p. 134, as amended).
Group variable annuity contracts are subject to the control and direction of the Insurance Commissioner; the words "regulated under" do not necessarily require the formal adoption of regulations under Ga. L. 1964, p. 338, § 1 et seq. so long as the contracts are in fact being regulated under the insurance law. 1970 Op. Att'y Gen. No. 70-22 (decided under former Ga. L. 1957, p. 134, as amended).
RESEARCH REFERENCES
Am. Jur. 2d.
- 69 Am. Jur. 2d, Securities Regulation - State, §§ 16, 26 et seq.
C.J.S.- 79A C.J.S., Securities Regulation and Commodity Futures Trading Regulation, § 2.
ALR.- Sale of memberships in club or similar organization as sale of securities within provisions of securities Acts, 87 A.L.R.2d 1140.
Who is "dealer" under state securities Acts exempting sales by owners other than issuers not made in course of successive transactions, and the like, 6 A.L.R.3d 1425.
What passes under term "securities" in will, 27 A.L.R.3d 1386.
What constitutes an "investment contract" within the meaning of state Blue Sky Laws, 47 A.L.R.3d 1375.
Validity of pyramid distribution plan, 54 A.L.R.3d 217.
State regulation of viatical life insurance programs, viatical settlements, and viatical investments, 28 A.L.R.6th 281.
"Common enterprise" element of Howey test to determine existence of investment contract regulable as "security" within meaning of federal Securities Act of 1933 (15 USCS § 77a et seq.) and Securities Exchange Act of 1934 (15 USCS § 78a et seq.), 90 A.L.R. Fed. 825.
What is "investment contract" within meaning of § 2(1) of Securities Act of 1933 (15 USCS § 77b(1)) and § 3(a)(10) of Securities Exchange Act of 1934 (15 USCS § 78c(a)(10)), both defining term "security" as including investment contract, 134 A.L.R. Fed 289.