Co-authored by Jason F. Clouser.
A California district court granted the Securities and Exchange Commission’s motion for a preliminary injunction against defendants who were selling general partnership interests in parcels of land. The court determined that the SEC had made a prima facie showing that the general partnership interests at issue could be designated “securities,” thus triggering the SEC’s enforcement authority. In making such determination, the court employed a test, known as the Williamson test, devised by the Fifth Circuit and adopted by the Ninth Circuit (the federal appellate court for California). The general partnerships in this case owned a fraction of a parcel of land and therefore only had partial control over the land. The court found that the SEC had made a prima facie case under Williamson by demonstrating that the defendants’ likely involvement in selling the parcel of land in which the general partnerships were invested, their pivotal operational role with respect to the general partnerships, the fractional nature of the general partnerships’ interest in the land and the apparent use of investors’ IRA funds cumulatively satisfied the court that the SEC had made a prima facie case that the general partnership interests at stake were securities.
SEC v. Schooler, No. 12-cv-2164, 2012 WL 4761917 (S.D.Cal. Oct. 5, 2012).