Securities and Exchange Commission v. Arcturus

Arcturus Corporation and Aschere Energy, LLC, along with three individuals and two other companies (collectively, the promoters) (defendants), offered and sold interests in six oil and gas drilling projects. To identify investors, the promoters conducted a nationwide cold-calling campaign. The salesperson would ask prospects whether they had experience in oil and gas investing. If they did and were interested, Arcturus would send a questionnaire to assess whether they were accredited and suitable for the investment based on net worth and industry experience. Across the six projects, approximately 340 investors signed joint venture agreements with the promoters. Under those agreements, each project’s day-to-day operations were managed by either Arcturus or Aschere. However, the investors retained significant control, including the power to remove the managers and veto their decisions. The investors regularly exercised these powers. The Securities and Exchange Commission (SEC) (plaintiff) filed a civil enforcement action against the promoters, arguing that the interests sold were investment contracts—securities requiring registration under federal law. The promoters responded that the projects were bona fide joint ventures, not securities, because the investors had real managerial authority. The district court granted summary judgment in favor of the SEC. The promoters appealed.