Practice question
A scheme met all investment-contract elements when offered, but the venture later failed and paid no profit. The promoter argues the later failure proves no security ever existed. Which answer is correct?
- The expectation and economic arrangement at offer are not erased merely by later business failure
- Every failed venture is automatically outside the securities definition
- Only profitable frauds can involve securities
- The promoter may decide classification by refusing payment
- Actual payment replaces every other element
Legal references
- RA8799 Securities Regulation Code: https://lawphil.net/statutes/repacts/ra2000/ra_8799_2000.html Sections3.1,9–10.
- Power Homes Unlimited v. SEC, GR164182, February26 2008 MAIN: https://lawphil.net/judjuris/juri2008/feb2008/gr_164182_2008.html MAIN flexible investment-contract test.
- SEC v. Prosperity.Com, GR164197, January25 2012 MAIN: https://lawphil.net/judjuris/juri2012/jan2012/gr_164197_2012.html MAIN test and role of persuasive foreign authorities.
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