Series 63 practice questionmediumApplication of Investment Contract
An agent offers shares in a citrus grove managed by a third party, with profits distributed to investors. Under the Howey Test and Section 401(l) of the USA, these shares are best described as:
- ASecurities, because they fit the definition of an investment contract✓ Correct answer
- BNot securities, because the investors do not actively participate
- CNot securities, because it is an agricultural investment
- DSecurities, only if sold to more than 10 investors
Explanation
Why A — Securities, because they fit the definition of an investment contract
These meet the Howey Test (investment of money, common enterprise, expectation of profit from others), making them securities under Section 401(l). Active participation is not required, and the type of asset (agriculture) does not exclude it.
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