Big 3 Auto Products sold auto parts by purchasing directly from parts manufacturers, who would ship directly to Big 3's independent wholesalers, who in turn serviced tune-up shop accounts. The independent wholesalers would typically pay Big 3 $1000 for 10 accounts when they signed a distributorship agreement. After several independent wholesalers lost money under this arrangement, the State of Kansas charged Big 3 with selling securities without prior registration, alleging that the distributor agreement was an unregulated investment contract and therefore a security.
The case and case summary can also be viewed online at: http://www.mlmlegal.com/legal-cases/Kansas_v_Colby.php
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