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Warfield v. Alaniz

United States Court of Appeals for the Ninth Circuit
569 F.3d 1015 (2009)


Facts

Robert Dillie sold charitable gift annuities through his Mid-America Foundation, which promised investors “a gift for your lifetime and beyond.” Dillie promised his investors annual payments while they lived; the remainder after an investor's death was to be paid to that investor’s charity of choice. The program’s brochures focused on its long-term income possibilities. Dillie used newly invested funds to make payouts to existing investors and to pay commissions to agents who sold the gift annuities. The rate at which Dillie paid out annuities was based on the life expectancy of each investor, as was the present value of each annuity. The Securities and Exchange Commission (SEC) filed a civil suit against Dillie. Lawrence Warfield (plaintiff) was appointed receiver of Dillie’s assets. Warfield filed a complaint, seeking the return of the commissions Dillie paid to the program’s agents. The district court found that the gift annuities were investment contracts subject to the jurisdiction of the SEC. Warfield appealed, arguing that investors had no expectation of profits from their investments because they intended any profits to go to charity. Warfield also argued that because the present value of an annuity at the time of purchase was always less than the investment amount, investors did not expect to profit from the program.

Rule of Law

Issue

Holding and Reasoning (Thomas, J.)

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