Charles E. Edwards (defendant) operated a company that leased payphones to individuals. An individual would pay $7,000 up front and would receive a fixed return each month in exchange. Edwards’ company became insolvent however, and was forced to declare bankruptcy. Upon declaring bankruptcy, the Securities and Exchange Commission (plaintiff) filed suit against Edwards, alleging that his investment product was a security, and thus subject to federal securities laws. The district court ruled in favor of the SEC. Edwards appealed, with the court of appeals ruling in his favor, stating that the third prong of the Howey test was not met when there is a contract for a fixed return. The SEC petitioned for certiorari to the Supreme Court of the United States.