The Court of Appeals ruled that the District Court erred when it did not consider the distributor agreement between Koscot and Bond to be a security. Bond signed a distributor agreement, authorizing her to purchase cosmetics and recruit other distributors. The Appeals Court found that the evidence produced at trial tended to show that recruitment of additional distributors would materially benefit Bond, and that the arrangement was identical to an arrangement that the Appeals Court had found to be a security in another case. Because the agreements were identical, the District Court erred as a matter of law in deciding that they were not securities.

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