State v. Hawaii Market Center

What is the definition of an investment contract under Hawaii State Law?

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The Court ruled that the scheme in question was a security, but did so by adopting a new and different test than that used by other states. Hawaii Market Center (HMC) sold "founding" memberships to promoters who could earn money through selling additional memberships or referring others to shop at the store using the promoter’s buyer's cards. The program focused on the marketing to additional promoters and not on the sale of merchandise to end-users. The Hawaii Supreme Court decided that the scheme was an investment contract because the money earned by the promoter was more like the money earned by an investment than a referral sales plan. The Court declined to adopt the popular Howey definition of an investment contract, one where profits come solely from the efforts of others. Instead the court focused on the functional characteristics of an investment contract and concluded that in Hawaii an investment contract is the investment of initial value, subject to the risks of an enterprise, is induced by representations of profit, and the investor does not have practical and actual control over the decisions of the enterprise.

Case and case summary are also available online at: http://www.mlmlegal.com/legal-cases/State_v_HawaiiMarketCenter.php

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Published In: MLM / Direct Sales Updates, MLM Consulting / Network Marketing Updates, Securities Updates

Reference Info:State, 9th Circuit, Hawaii | United States

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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