The AdPacks Are Securities Being Sold in Unregistered Transactions
76. The purchase of AdPacks involves the investment of money , in the form of the $50 purchase price.
77. Investor funds are aggregated together in PayPal, at other payment processors, and at JPMorgan Chase. Investors can see their status by logging into their subaccounts. A
portion of investor funds also went to the Traffic Monsoon reserve fund, which was also maintained at PayPal. Payments are made out of the reserve fund to supplement profit
sharing payments back to investors.
78. Payment of the investors’ returns is almost entirely dependent on Scoville’s ability to sell AdPacks. The financial success or failure of the investors are inextricably tied to the efforts of Scoville and Traffic Monsoon.
79. Investors have no role in managing Traffic Monsoon and rely on Traffic Monsoon to operate the traffic exchange, collect revenue, supplement the revenue from its reserve fund,
and distribute it to members. Traffic Monsoon also sets up the banner ad rotator and tracks clicks by members seeking to qualify to share in profits.
It's almost like they have done this before...
The "Howey Test" is a test created by the Supreme Court for determining whether certain transactions qualify as "investment contracts." If so, then under the Securities Act of 1933 and the Securities Exchange Act of 1934, those transactions are considered securities and therefore subject to certain disclosure and registration requirements.
It is an investment of money-SEC 76
There is an expectation of profits from the investment-SEC 77
The investment of money is in a common enterprise-SEC 77
Any profit comes from the efforts of a promoter or third party-SEC 78 & 79
What Is the Howey Test? - FindLaw
Substance Over Form
In deciding Howey, the Supreme Court created a test that looks at an investment's substance, rather than its form, as the determining factor for whether it is a security.
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