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Foreign Currency Trading Pools Meet Howey Test for SEC Regulation
Description Appeals court upheld an injunction issued by a federal judge at the request of the SEC to prevent further operation of a foreign currency trading pool run out of Florida, with trades executed in the Bahamas. The operation met the criteria of the Howey test, so there was a security in the trading pool subject to SEC regulation.
Topic Securities Law
Key Words Howey Test; Investment Contracts
C A S E   S U M M A R Y
Facts Unique Financial Concepts offered the sale of foreign currency options. The company advertised heavily, promising large returns. Customer agreements explained that investment money would be pooled together and that Unique had sole discretion over investments, although these terms were later dropped from customer agreements. Unique representatives advised investors as to which currencies to invest in. Trades were made via companies in the Bahamas. Of the $6.5 million invested in one year, only $2.5 million was sent to the Bahamas for currency trades. The rest of the money went to sales commissions, the heads of Unique, and overhead expenses. The SEC sought and obtained a preliminary injunction against Unique from further operations due to securities law violations. Unique appealed.
Decision Affirmed. The Howey test was satisfied-there was a pooling of investors' money into a common enterprise with the expectation of profits. Unique asserted it was selling a "commodity pool" involving merging of client money to buy and sell assorted foreign currencies. The details of the operation are muddled, as the books were poorly kept, but it is clear that these were not individual client accounts entirely under the control of the individual investors. This is within the jurisdiction of the SEC and the CFTC.
Citation Securities and Exchange Comm. v. Unique Financial Concepts, Inc., 196 F.3d 1195 (11th Cir., 1999)

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