Case Synopsis: The Court was asked to determine if an injunction was proper because part of the program “Dare to be Great” was found to be a security under federal securities laws.
Legal Issue: Is an injunction proper when a sales program is found to be a security under federal securities laws?
Court Ruling: The Court of Appeals held that the injunction issued by the District court, prohibiting the distribution of the program “Dare to be Great” and freezing the assets of Glenn W. Turner Inc, was proper because the part of the program was a security that had been sold in violation of federal securities laws. The District Court held that Dare’s source of income was from the selling of the program, and people were attracted to it by the opportunity to earn money selling others the opportunity to sell the program. In buying into the system, the investor buys a share of the proceeds of the selling efforts of Dare, but puts in some individual effort in recruiting potential new members to hear the sales pitch. Because of the remedial nature of the securities laws, the statute should be broadly interpreted to include schemes that in substance, if not form, are securities. Dare met this standard, and an injunction was proper to prevent harm to additional investors, and to preserve the assets of the company for possible distribution to those harmed.
Practical Importance to Business of MLM/Direct Sales/Direct Selling/Network Marketing/Party Plan/Multilevel Marketing: Glenn Turner is a landmark case in the MLM/Direct Sales Industry. It established the “functional test” of a security for use in determining if programs, like Dare to be Great, should be regulated under federal securities laws. The functional test looks to whether the program functions like a security, and not simply to the form of the program.
