Gallion v. Alabama Market Centers , 213 So.2d 841 (1968)

Gallion v. Alabama Market Centers


The Alabama Supreme Court held that the referral sales program in question was not an investment contract subject to regulation as a security. The state security statute was modeled after the federal statute and the Alabama court used the US Supreme court interpretation of an investment contract in W.J. Howey to determine the extent of the state law's applicability. Since the Howey test requires the profits to come "solely" from the efforts from others, the court held that Alabama Market Centers' referral sales program was not an investment contract. AMC sold distributors a product and the right to seek out other customers though the distribution of "purchase authority cards." The cards were distributed to other potential purchasers giving them the right to purchase goods from the center. When a purchase was made with a distributor's cards, the distributor received a commission on the sale. The court found that since the distributor had to actively seek out and manage recipients of their purchase authority cards the profits they received did not come solely from the efforts of others.

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Reference Info:State, 11th Circuit, Alabama | United States

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