Securities & Exchange Com'n v. Glenn W. Turner Ent., Inc.

• Court: U.S. Court of Appeals — Ninth Circuit
• Writing for the Court: DUNIWAY, HUFSTEDLER, and TRASK, Circuit
• Citation: Securities & Exchange Com'n v. Glenn W. Turner Ent., Inc., 474 F.2d 476 (9th Cir. 1973)
• Decision Date: 01 February 1973
• Docket Number: No. 72-2544.,72-2544.
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. GLENN W. TURNER ENTERPRISES, INC., et al., Defendants-Appellants.

474 F.2d 476 (1973)

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. GLENN W. TURNER ENTERPRISES, INC., et al., Defendants-Appellants.

No. 72-2544.

United States Court of Appeals, Ninth Circuit.

February 1, 1973.

Jeffrey A. Tew (argued), Miami, Fla., Charles R. Mowry, of Dardano, Mowry & Hanson, Portland, Or., Clarke C. Brown, Salem, Or., Theodore I. Koskoff, Bridgeport, Conn., Bruce Jarman, Salem, Or., John A. Burgess, Montpelier, Vt., for defendants-appellants.

David Ferber, Solicitor (argued), James E. Newton, Jack H. Bookey, Francis N. Mithoug, Jerry King, Attys., Richard E. Nathan, Asst. Gen. Counsel, Securities and Exchange Comm., Washington, D. C., for plaintiff-appellee.

Before DUNIWAY, HUFSTEDLER, and TRASK, Circuit Judges.

DUNIWAY, Circuit Judge:

This is an appeal from an order, 348 F.Supp. 766, granting the Securities and Exchange Commission a preliminary injunction. The injunction prohibits offering and selling by appellants of certain of their "Adventures" and "Plans", and also any withdrawal by appellants of funds from the assets of the corporate defendants other than in the regular course of business. Dare To Be Great, Inc. (Dare), a Florida corporation, is a wholly owned subsidiary of Glenn W. Turner Enterprises, Inc. The individual defendants are, or were, officers, directors, or employees of the defendant corporations.¹

The trial court's findings, which are fully supported by the record, demonstrate that defendants' scheme is a gigantic and successful fraud. The question presented is whether the "Adventures" or "Plan" enjoined are "securities" within the meaning of the federal securities laws. Of the five that Dare offers — Adventures I, II, III, and IV, and the $1,000 Plan — the court held that Adventures III and IV and the $1,000 Plan are securities. We affirm.

I. The Adventures and the $1000 Plan — the facade.

The five courses offered by Dare ostensibly involve two elements. In return for his money, the purchaser is privileged to attend seminar sessions and receives tapes, records, and other material, all aimed at improving self-motivation and sales ability. He also receives, if he purchases either Adventure III or IV or the $1,000 Plan, the opportunity to help to sell the courses to others; if successful he receives part of the purchase price as his commission. There is no doubt that this latter aspect of the purchase is in all respects the significant one.

Adventure I costs $300. The purchaser receives one portable tape recorder, twelve tape recorded lessons, and certain written material in notebooks. He is entitled to attend a 12-16 hour group session.

Adventure II includes Adventure I, and costs $700. The purchaser receives twelve more tape recorded lessons. He is offered approximately 80 hours of group sessions.

Adventure III includes Adventures I and II, and costs $2,000. The purchaser receives six more tape recordings, one notebook of written material called "The Fun of Selling," and a limited amount of written instructions and material, as well as thirty more hours of group sessions. The purchaser also receives a different sort of benefit. After fulfilling a few nominal requirements he becomes an "independent sales trainee," empowered to sell the Adventures. He receives $100 for each Adventure I, $300 for each Adventure II, and $900 for each Adventure III that he sells.

Adventure IV costs $5,000, and includes Adventures I, II and III. The purchaser receives six more tapes, the opportunity for thirty more hours of group sessions, the opportunity to attend two other week-long courses in Florida, at his own expense, and he may or may not receive a movie projector with six cartridge-type films. He also is now empowered to sell all of the Adventures to others. For selling Adventure IV he gets $2,500.

Finally, there is the $1,000 Plan. For this sum the purchaser receives the tape cassettes sold in Adventure II, but not the accompanying written material. He also receives some additional sales instruction, and may be entitled to a 24-hour group session. He may also sell the Plan, if he brings two individuals to the person who sold him the Plan, and if these two also purchase the Plan from the first seller. If that occurs, he may then sell the Plan on his own, receiving $400 for each additional sale that he makes. If one brings three people into the scheme, he may sell the $1,000 Plan without buying it himself, and would earn the same $400 commission for each additional sale that he makes.

II. The Adventures and the Plan in operation.

It is apparent from the record that what is sold is not of the usual "business motivation" type of courses. Rather, the purchaser is really buying the possibility of deriving money from the sale of the plans by Dare to individuals whom the purchaser has brought to Dare. The promotional aspects of the plan, such as seminars, films, and records, are aimed at interesting others in the Plans. Their value for any other purpose, is, to put it mildly, minimal.

Once an individual has purchased a Plan, he turns his efforts toward bringing others into the organization, for which he will receive a part of what they pay. His task is to bring prospective purchasers to "Adventure Meetings."

A. The meetings.

These meetings are like an old time revival meeting, but directed toward the joys of making easy money rather than salvation. Their purpose is to convince prospective purchasers, or "prospects," that Dare is a sure route to great riches. At the meetings are employees, officers, and speakers from Dare, as well as purchasers (now "salesmen") and their prospects. The Dare people, not the purchaser-"salesmen", run the meetings and do the selling. They exude great enthusiasm, cheering and chanting; there is exuberant handshaking, standing on chairs, shouting, and "moneyhumming".² The Dare people dress in expensive, modern clothes; they display large sums of cash, flaunting it to those present, and even at times throwing it about; they drive new and expensive automobiles, which are conspicuously parked in large numbers outside the meeting place. Dare speakers describe, usually in a frenzied manner, the wealth that awaits the prospects if they will purchase one of the plans. Films are shown, usually involving the "rags-to-riches" story of Dare founder Glenn W. Turner. The goal of all of this is to persuade the prospect to purchase a plan, especially Adventure IV, so that he may become a "salesman", and thus grow wealthy as part of the Dare organization. It is intimated that as Glenn W. Turner Enterprises, Inc. expands, high positions in the organization, as well as lucrative opportunities to purchase stock, will be available. After the meeting, pressure is applied to the prospect by Dare people, in an effort to induce him to purchase one of the Adventures or the plan. The sale is sometimes closed by the purchaser who brought the prospect to the meeting, but primarily, by Dare salesmen, specialists in the "hard sell."³

The format of the meeting is preordained. A script created by Dare is strictly adhered to. The format applies even to the sale, there being a standard procedure for inducing the prospect to sign his name to the agreement and to part with his money. While no express guarantee of success is made at the meetings, and the statement is made that the purchaser must expect to work, the impression which is fostered is of the near inevitability of success to be achieved by anyone who purchases a plan and follows Dare's instructions.

Dare also arranges, in addition to the Adventure Meetings, "GO Tours," or "Golden Opportunity Tours." Prospects are taken by plane or bus to one of Dare's regional centers where further meetings and sales efforts are undertaken. A significant effort is made during the trip itself to sell the plans to prospects. Much the same atmosphere as at the meetings pervades the trip — exuberant shouting, chanting, handshaking, relating of success stories, and lavish displays of cash.

In a scheme such as this, the possibility that a market will become "saturated" is a real one. Saturation has in fact occurred in some markets, but this is not mentioned at the meetings. Few, if any, purchasers of these plans have achieved any success remotely approaching that described by defendants and their agents.

B. The role of the purchaser-salesman.

Once he has bought a plan that empowers him to help sell the plans to others, the task of the purchaser is to find prospects and induce them to attend Adventure Meetings. He is not to tell them that Dare To Be Great, Inc. is involved. Rather, he catches their interest by intimating that the result of attendance will be significant wealth for the prospect. It is at the meetings that the sales effort takes place. The "salesman" is also told that to maximize his chances of success he should impart an aura of affluence, whether spurious or not — to pretend that through his association with Dare he has obtained wealth of no small proportions. The training that he has received at Dare is aimed at educating him on this point. He is told to "fake it 'til you make it," or to give the impression of wealth even if it has not been attained. He is urged to go into debt if necessary to purchase a new and expensive automobile and flashy clothes, and to carry with him large sums of money, borrowing if necessary, so that it can be ostentatiously displayed. The purpose of all this is to put the prospect in a more receptive state of mind with respect to the inducements that he will be subject to at the meetings.

III. The Adventures and Plans as Securities.

The district court held that Adventures III and IV, and the $1,000 Plan were securities under the Securities Act of 1933, 15 U.S.C. § 77a et seq. and the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. The definitions of security that are found in each Act are almost identical.⁴ Both definitions include the terms "investment contract," ...