Securities Regulation Keyed to Coffee
Securities and Exchange Commission v. Charles E. Edwards
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Charles E. Edwards was chairman, CEO and lone shareholder of the ETS Payphones, Inc., a company that sold payphones through independent merchants to the public. ETS offered a contract where ETS leased back the payphone from the client for a fixed monthly sum, giving the clients a fixed annual return on the investment. ETS failed to make the payments necessitated by the leaseback contract due to the payphones not generating enough revenue, forcing the company to be reliant on new investors to fulfill its obligations. Following ETS’ filing for bankruptcy, the SEC brought a civil enforcement action, against Edwards and ETS, alleging the aforementioned had violated registration requirements and antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The district court ruled that the sale-and-leaseback agreement was an “investment contract”, and therefore must comply with federal securities laws. The court of appeals reversed, with the Supreme Court granting review.
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