Mark Hubbard has been very successful in the cattle business over a number of years. Hubbard has decided to establish a cattle program as an investment tool. He will purchase cattle with investors' money and then provide medical care, feed, and
transportation on a service contract basis. The profits then will be divided proportionately among the investors. An investment company, Money Ventures, Inc, is interested in the entire offering of Hubbard's cattle program. Hubbard is unsure as to whether the securities acts apply to him. In addition, he wonders whether his venture, as structured, is exempt if the activity is within the securities acts. Should Hubbard be concerned?
?For the security acts to apply, a transaction must involve a "security" within the meaning of the acts. The way that the term security has been interpreted allows the inclusion of almost any investment instrument within the confines of the securities acts. Certainly, Hubbard's offering is not one of stocks or of bonds, but it is an offering of an "investment contract" causing application of the securities acts. Hubbard's operation involves: (1 ) an investment of money; (2 ) a common enterprise; and (3 ) an expectation of future profits from the efforts of others. Despite being subject to the securities acts, Hubbard should qualify for an exemption. Under SEC Regulation D, offerings of any amount made solely to accredited investors, such as an investment company, are exempt from the registration requirements of the act. Additional arguments could be made for exemption under SEC Rules 504, 505, or 506.
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