§ 3.1.4

• Jurisdiction: Arizona

§ 3.1.4 Solely Through the Efforts of Others

Howey's final element requires that the profits be derived solely from the efforts of others. The efforts need not be those of the promoter; they can be those of any third party.⁴¹⁶

In Turner, the Ninth Circuit modified this element by holding that "solely" is not to be taken literally.⁴¹⁷ The Ninth Circuit adopted a "more realistic test" based on "whether the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise."⁴¹⁸ Arizona's courts have adopted this standard.⁴¹⁹

Arizona courts also recognize that the "efforts of others" element can be met by third parties if the significant efforts that affect the success or failure of the business are those of someone other than the investor.⁴²⁰ Where investors have the option of marketing a product through a promoter, third party, or themselves, the "efforts of others" focus is on "whether the typical investor would accept third party efforts."⁴²¹ The "theoretical possibility that an investor would refuse the efforts of others is not fatal to a determination that profits are to be earned from third party efforts."⁴²²

On the other hand, if an investor actively participates in the business, the "efforts of others" element usually will not be satisfied.⁴²³

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Notes:

^[416]See Daggett v. Jackie Fine Arts, Inc., 152 Ariz. 559...