When Is Real Estate NOT Real Estate

When is real estate NOT real estate? Not knowing the answer to that question could land you in jail. Knowing
the answer can make you a lot of money.

Bill Howey owned citrus groves in Florida. As a smart businessman, he decided to sell half of his citrus groves to pay for the development of his remaining groves. As most of the purchasers were not Florida residents nor farmers, Bill had them lease their property back to Bill, who would then harvest and market the produce.

The seemingly innocent transaction became the landmark case in determining what constitutes a security.

(SEC vs. Howey). The US Supreme Court held that, for an instrument to be a security it must be:

1. an investment of money
2. in a common enterprise
3. an enterprise that carries an expectation of profits;
4. profits to be derived primarily from the efforts of a person other than the investor.

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