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United States Court of Appeals, First Circuit.
SECURITIES AND EXCHANGE COMMISSION, Plaintiff, Appellant, v. SG LTD. et al., Defendants, Appellees.
Summary
Limning decisional framework applicable to motions to dismiss for failure to state a claim
Summary of this case from Garrett v. Tandy Corp.
Opinion
Nos. 01-1176, 01-1332.
Heard August 2, 2001.
Decided September 13, 2001.
Appeal from the United States District Court for the District of Massachusetts, Joseph L. Tauro, J.
Mark Pennington, Assistant General Counsel, with whom David M. Becker, General Counsel, Jacob H. Stillman, Solicitor, and Meyer Eisenberg, Deputy General Counsel, were on brief, for appellant.
Daniel I. Small, with whom Meaghan E. Barrett and Butters, Brazilian Small, LLP were on brief, for appellees.
Before BOUDIN, Chief Judge, SELYA and LIPEZ, Circuit Judges.
SELYA, Circuit Judge.
These appeals â procedurally, there are two, but for all practical purposes they may be treated as one â require us to determine whether virtual shares in an enterprise existing only in cyberspace fall within the purview of the federal securities laws. SG Ltd., a Dominican corporation, and its affiliate, SG Trading Ltd. (collectively, âSGâ or âdefendantsâ), asseverate that the virtual shares were part of a fantasy investment game created for the personal entertainment of Internet users, and therefore, that those shares do not implicate the federal securities laws. The Securities and Exchange Commission (âthe SECâ), plaintiff below and appellant here, counters that substance ought to prevail over form, and that merely labeling a website as a game should not negate the applicability of the securities laws. The district court accepted the defendantsâ view and dismissed the SECâs complaint. SEC v. SG Ltd., 142 F.Supp.2d 126 (D.Mass. 2001). Concluding, as we do, that the SEC alleged sufficient facts to state a triable claim, we reverse.
I. BACKGROUND
We take the facts as alleged in the SECâs first amended complaint (shorn, however, of empty rhetoric). Aulson v. Blanchard, 83 F.3d 1, 3 (1st Cir. 1996).
The underlying litigation was spawned by SGâs operation of a âStockGenerationâ website offering on-line denizens an opportunity to purchase shares in eleven different âvirtual companiesâ listed on the websiteâs âvirtual stock exchange.â SG arbitrarily set the purchase and sale prices of each of these imaginary companies in biweekly ârounds,â and guaranteed that investors could buy or sell any quantity of shares at posted prices. SG placed no upper limit on the amount of funds that an investor could squirrel away in its virtual offerings.
The SECâs complaint focused on shares in a particular virtual enterprise referred to by SG as the âprivileged company,â and so do we. SG advised potential purchasers to pay âparticular attentionâ to shares in the privileged company and boasted that investing in those shares was a âgame without any risk.â To this end, its website announced that the privileged companyâs shares would unfailingly appreciate, boldly proclaiming that â[t]he share price of [the privileged company] is supported by the owners of SG, this is why its value constantly rises; on average at a rate of 10% monthly (this is approximately 215% annually).â To add plausibility to this representation and to allay anxiety about future pricing, SG published prices of the privileged companyâs shares one month in advance.
While SG conceded that a decline in the share price was theoretically possible, it assured prospective participants that âunder the rules governing the fall in prices, [the share price for the privileged company] cannot fall by more than 5% in a round.â To bolster this claim, it vouchsafed that shares in the privileged company were supported by several distinct revenue streams. According to SGâs representations, capital inflow from new participants provided liquidity for existing participants who might choose to sell their virtual shareholdings. As a backstop, SG pledged to allocate an indeterminate portion of the profits derived from its website operations to a special reserve fund designed to maintain the price of the privileged companyâs shares. SG asserted that these profits emanated from four sources: (1) the collection of a 1.5% commission on each transaction conducted on its virtual stock exchange; (2) the bid-ask spread on the virtual shares; (3) the âskillful manipulationâ of the share prices of eight particular imaginary companies, not including the privileged company, listed on the virtual stock exchange; and (4) SGâs right to sell shares of three other virtual companies (including the privileged company). As a further hedge against adversity, SG alluded to the availability of auxiliary stabilization funds which could be tapped to ensure the continued operation of its virtual stock exchange.
SGâs website contained lists of purported âbig winners,â an Internet bulletin board featuring testimonials from supposedly satisfied participants, and descriptions of incentive programs that held out the prospect of rewards for such activities as the referral of new participants (e.g., SGâs representation that it would pay â20, 25 or 30% of the referred playerâs highest of the first three paymentsâ) and the establishment of affiliate websites.
At least 800 United States domiciliaries, paying real cash, purchased virtual shares in the virtual companies listed on the defendantsâ virtual stock exchange. In the fall of 1999, over $4,700,000 in participantsâ funds was deposited into a Latvian bank account in the name of SG Trading Ltd. The following spring, more than $2,700,000 was deposited in Estonian bank accounts standing in the names of SG Ltd. and SG Perfect Ltd., respectively.
In late 1999, participants began to experience difficulties in redeeming their virtual shares. On March 20, 2000, these difficulties crested; SG unilaterally suspended all pending requests to withdraw funds and sharply reduced participantsâ account balances in all companies except the privileged company. Two weeks later, SG peremptorily announced a reverse stock split, which caused the share prices of all companies listed on the virtual stock exchange, including the privileged company, to plummet to 1/10,000 of their previous values. At about the same time, SG stopped responding to participant requests for the return of funds, yet continued to solicit new participants through its website.
The SEC undertook an investigation into SGâs activities, which culminated in the filing of a civil action in federal district court. The SECâs complaint alleged, in substance, that SGâs operations constituted a fraudulent scheme in violation of the registration and antifraud provisions of the federal securities laws. See Securities Act of 1933 § 5(a), (c), 15 U.S.C. § 77e(a), (c) (offer, sale, or delivery of unregistered securities); id. § 17(a), 15 U.S.C. § 77q(a) (fraud in offer or sale of securities); Securities Exchange Act of 1934 § 10(b), 15 U.S.C. § 78j(b); SEC Rule 10b-5, 17 C.F.R. 240.10b-5 (fraud in connection with purchase or sale of securities). The SEC sought injunctive relief, disgorgement, and civil penalties.
The district court entered a temporary restraining order (subsequently converted to a preliminary injunction) blocking SGâs operation of the website pendente lite. The court also instituted an asset freeze that infrigidated approximately $5,500,000. The SECâs success was short-lived; after some skirmishing, not relevant here, the district court granted SGâs motion to dismiss the complaint for failure to state a cognizable claim on the ground that the virtual shares were a clearly marked and defined game lacking a business context. See SEC v. SG Ltd., 142 F.Supp.2d at 131. The SEC immediately appealed, and we issued a stay keeping both the preliminary injunction and the asset freeze in place for the time being.
These appeals hinge on whether the district court erred in ruling that transactions in the privileged companyâs shares did not constitute transactions in securities. In the pages that follow, we explore the makeup of that particular type of security known as an investment contract; examine the district courtâs rationale; and apply the tripartite âinvestment contractâ test to the facts as alleged. Because the lower court dismissed the SECâs first amended complaint for failure to state a claim upon which relief might be granted, Fed.R.Civ.P. 12(b)(6), we conduct a de novo review, âaccepting as true all well-pleaded factual averments and indulging all reasonable inferences in the plaintiffâs favor.â Aulson, 83 F.3d at 3. If the facts contained in the complaint, viewed in this favorable light, justify recovery under any applicable legal theory, we must set aside the order of dismissal. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Aulson, 83 F.3d at 3.
II. THE LEGAL LANDSCAPE
These appeals turn on whether the SEC alleged facts which, if proven, would bring this case within the jurisdictional ambit of the federal securities laws. Consequently, we focus on the type of security that the SEC alleges is apposite here: investment contracts.
A. Investment Contracts.
The applicable regulatory regime rests on two complementary pillars: the Securities Act of 1933, 15 U.S.C. §§ 77a- 77aa, and the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a- 78mm. These statutes employ nearly identical definitions of the term âsecurity.â See Securities Act of 1933 § 2(a)(1), 15 U.S.C. § 77b(a)(1); Securities Exchange Act of 1934 § 3(a)(10), 15 U.S.C. § 78c(a)(10). Congress intended these sweeping definitions, set forth in an appendix hereto, to encompass a wide array of financial instruments, ranging from well-established investment vehicles (e.g., stocks and bonds) to much more arcane arrangements. SEC v. C.M. Joiner Leasing Corp., 320 U.S. 344, 351, 64 S.Ct. 120, 88 L.Ed. 88 (1943). Included in this array is the elusive, essentially protean, concept of an investment contract.
Judicial efforts to delineate what is â and what is not â an investment contract are grounded in the seminal case of SEC v. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946). The Howey Court established a tripartite test to determine whether a particular financial instrument constitutes an investment contract (and, hence, a security). This test has proven durable. Under it, an investment contract comprises (1) the investment of money (2) in a common enterprise (3) with an expectation of profits to be derived solely from the efforts of the promoter or a third party. Id. at 298-99, 66 S.Ct. 1100. This formulation must be applied in light of the economic realities of the transaction. United Hous. Found., Inc. v. Forman, 421 U.S. 837, 851-52, 95 S.Ct. 2051, 44 L.Ed.2d 621 (1975); Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967); Futura Dev. Corp. v. Centex Corp., 761 F.2d 33, 39 (1st Cir. 1985). In other words,
substance governs form, and the substance of an investment contract is a security-like interest in a âcommon enterpriseâ that, through the efforts of the promoter or others, is expected to generate profits for the security holder, either for direct distribution or as an increase in the value of the investment.
Rodriguez v. Banco Cent. Corp., 990 F.2d 7, 10 (1st Cir. 1993) (citations omitted).
The Supreme Court has long espoused a broad construction of what constitutes an investment contract, aspiring âto afford the investing public a full measure of protection.â Howey, 328 U.S. at 298, 66 S.Ct. 1100. The investment contract taxonomy thus âembodies a flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.â Id. at 299.
The Howey test has proven to be versatile in practice. Over time, courts have classified as investment contracts a kaleidoscopic assortment of pecuniary arrangements that defy categorization in conventional financial terms, yet nonetheless satisfy the Howey Courtâs three criteria. See, e.g., id. (holding that sale of citrus groves, in conjunction with service contract, qualifies as an investment contract); Teague v. Bakker, 35 F.3d 978, 981, 990 (4th Cir. 1994) (same re purchase of life partnership in evangelical community); Long v. Shultz Cattle Co., 881 F.2d 129, 132 (5th Cir. 1989) (same re cattle-feeding and consulting agreement); Miller v. Cent. Chinchilla Group, 494 F.2d 414, 415, 418 (8th Cir. 1974) (same re chinchilla breeding and resale arrangement).
B. The District Courtâs Rationale.
We pause at this juncture to address the district courtâs rationale. Relying upon a dictum from Howey discussing âthe many types of instruments that in our commercial world fall within the ordinary concept of a security,â 328 U.S. at 299, 66 S.Ct. 1100 (quoting legislative history), the district court drew a distinction between what it termed âcommercial dealingsâ and what it termed âgames.â SEC v. SG Ltd., 142 F.Supp.2d at 131. Characterizing purchases of the privileged companyâs shares as a âclearly marked and defined game,â the court concluded that since that activity was not part of the commercial world, it fell beyond the jurisdictional reach of the federal securities laws. Id. In so ruling, the court differentiated SGâs operations from a classic Ponzi or pyramid scheme on the ground that those types of chicanery involved commercial dealings within a business context. Id.
We do not gainsay the obvious correctness of the district courtâs observation that investment contracts lie within the commercial world. Contrary to the district courtâs view, however, this locution does not translate into a dichotomy between business dealings, on the one hand, and games, on the other hand, as a failsafe way for determining whether a particular financial arrangement should (or should not) be characterized as an investment contract. Howey remains the touchstone for ascertaining whether an investment contract exists â and the test that it prescribes must be administered without regard to nomenclature. See Intâl Bhd. of Teamsters v. Daniel, 439 U.S. 551, 561, 99 S.Ct. 790, 58 L.Ed.2d 808 (1979); see also Forman, 421 U.S. at 851-52, 95 S.Ct. 2051 (warning against reliance on âthe names that may have been employed by the partiesâ to identify a particular investment); cf. William Shakespeare, Romeo Juliet, act 2, sc. 2 (circa 1597) (âA rose by any other name would smell as sweet.â). As long as the three-pronged Howey test is satisfied, the instrument must be classified as an investment contract. Howey, 328 U.S. at 301, 66 S.Ct. 1100. Once that has occurred, âit is immaterial whether the enterprise is speculative or non-speculative or whether there is a sale of property with or without intrinsic value.â Id. It is equally immaterial whether the promoter depicts the enterprise as a serious commercial venture or dubs it a game.
A fairly recent Supreme Court opinion demonstrates that the âcommercial worldâ to which the Howey Court alluded actually encompasses the total universe of financial instruments available to investors, rather than the subset of financial instruments envisioned by the district court (i.e., âcommerceâ as opposed to âgamesâ). In that case, Justice Marshall wrote:
In defining the scope of the market that it wished to regulate, Congress painted with a broad brush. It recognized the virtually limitless scope of human ingenuity, especially in the creation of âcountless and variable schemes devised by those who seek the use of the money of others on the promise of profits,â and determined that the best way to achieve its goal of protecting investors was âto define `the term âsecurityâ in sufficiently broad and general terms so as to include within that definition the many types of instruments that in our commercial world fall within the ordinary concept of a security.'â Congress therefore did not attempt precisely to cabin the scope of the Securities Acts. Rather, it enacted a definition of âsecurityâ sufficiently broad to encompass virtually any instrument that might be sold as an investment.
Reves v. Ernst Young, 494 U.S. 56, 60-61, 110 S.Ct. 945, 108 L.Ed.2d 47 (1990) (citations omitted). This expansive language, coupled with Congressâs sweeping definitions of âsecurity,â persuade us to reject the district courtâs use of Howeyâs âcommercial worldâ reference as a limiting principle.
To sum up, Howey supplies the appropriate template for identifying investment contracts within the overarching ambit of the federal securities laws. Contrary to the district courtâs conclusion, this template admits of no exception for games or gaming. Thus, the language on SGâs website emphasizing the game-like nature of buying and selling virtual shares of the privileged company does not place such transactions beyond the long reach of the federal securities laws.
III. ADMINISTERING THE TRIPARTITE TEST
What remains is to analyze whether purchases of the privileged companyâs shares constitute investment contracts. We turn to that task, taking the three Howey criteria in sequence.
A. Investment of Money.
The first component of the Howey test focuses on the investment of money. The determining factor is whether an investor âchose to give up a specific consideration in return for a separable financial interest with the characteristics of a security.â Daniel, 439 U.S. at 559, 99 S.Ct. 790. We conclude that the SECâs complaint sufficiently alleges the existence of this factor.
To be sure, SG disputes the point. It argues that the individuals who purchased shares in the privileged company were not so much investing money in return for rights in the virtual shares as paying for an entertainment commodity (the opportunity to play the StockGeneration game). This argument suggests that an interesting factual issue may await resolution â whether participants were motivated primarily by a perceived investment opportunity or by the visceral excitement of playing a game. Nevertheless, this case comes to us following a dismissal under Rule 12(b)(6), and the SECâs complaint memorializes, inter alia, SGâs representation that participants could âfirmly expect a 10% profit monthlyâ on purchases of the privileged companyâs shares. That representation plainly supports the SECâs legal claim that participants who invested substantial amounts of money in exchange for virtual shares in the privileged company likely did so in anticipation of investment gains. Given the procedural posture of the case, no more is exigible to fulfill the first part of the Howey test.
B. Common Enterprise.
The second component of the Howey test involves the existence of a common enterprise. Before diving headlong into the sea of facts, we must dispel the miasma that surrounds the appropriate legal standard.
1. The Legal Standard. Courts are in some disarray as to the legal rules associated with the ascertainment of a common enterprise. See generally II Louis Loss Joel Seligman, Securities Regulation 989-97 (3d ed. rev. 1999). Many courts require a showing of horizontal commonality â a type of commonality that involves the pooling of assets from multiple investors so that all share in the profits and risks of the enterprise. See SEC v. Infinity Group Co., 212 F.3d 180, 187-88 (3d Cir. 2000), cert. denied, ___ U.S. ___, 121 S.Ct. 1228, 149 L.Ed.2d 138 (2001); SEC v. Life Partners, Inc., 87 F.3d 536, 543 (D.C. Cir. 1996); Wals v. Fox Hills Dev. Corp., 24 F.3d 1016, 1018 (7th Cir. 1994); Revak v. SEC Realty Corp., 18 F.3d 81, 87 (2d Cir. 1994); Curran v. Merrill Lynch, Pierce, Fenner Smith, 622 F.2d 216, 222, 224 (6th Cir. 1980), affâd on other grounds, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982). Other courts have modeled the concept of common enterprise around fact patterns in which an investorâs fortunes are tied to the promoterâs success rather than to the fortunes of his or her fellow investors. This doctrine, known as vertical commonality, has two variants. Broad vertical commonality requires that the well-being of all investors be dependent upon the promoterâs expertise. See Villeneuve v. Advanced Bus. Concepts Corp., 698 F.2d 1121, 1124 (11th Cir. 1983), affâd en banc, 730 F.2d 1403 (11th Cir. 1984); SEC v. Koscot Interplanetary, Inc., 497 F.2d 473, 478-79 (5th Cir. 1974). In contrast, narrow vertical commonality requires that the investorsâ fortunes be âinterwoven with and dependent upon the efforts and success of those seeking the investment or of third parties.â SEC v. Glenn W. Turner Enters., 474 F.2d 476, 482 n. 7 (9th Cir. 1973).
Courts also differ in the steadfastness of their allegiance to a single standard of commonality. Two courts of appeals recognize only horizontal commonality. See Wals, 24 F.3d at 1018; Curran, 622 F.2d at 222, 224. Two others adhere exclusively to broad vertical commonality. See Villeneuve, 698 F.2d at 1124; Koscot, 497 F.2d at 478-79. The Ninth Circuit recognizes both horizontal commonality and narrow vertical commonality. See Hocking v. Dubois, 885 F.2d 1449, 1459 (9th Cir. 1989) (en banc). To complicate matters further, four courts of appeals have accepted horizontal commonality, but have not yet ruled on whether they also will accept some form of vertical commonality. See Infinity Group, 212 F.3d at 187 n. 8; Life Partners, 87 F.3d at 544; Teague, 35 F.3d at 986 n. 8; Revak, 18 F.3d at 88. At least one of these courts, however, has explicitly rejected broad vertical commonality. See Revak, 18 F.3d at 88.
We note that broad vertical commonality is an expansive concept which typically overspreads other types of commonality. See Mordaunt v. Incomco, 469 U.S. 1115, 1115-16, 105 S.Ct. 801, 83 L.Ed.2d 793 (1985) (White, J., dissenting from denial of certiorari).
Thus far, neither the Supreme Court nor this court has authoritatively determined what type of commonality must be present to satisfy the common enterprise element. We came close in Rodriguez, in which we hinted at a preference for horizontal commonality. There, promoters selling parcels of land made âstrong and repeated suggestions that the surrounding area would develop into a thriving residential community.â 990 F.2d at 11. Although we held that the financial arrangement did not constitute a security, we implied that an actual commitment by the promoters to develop the community themselves, coupled with the buyersâ joint financing of the enterprise, could constitute a common enterprise. See id.
The case at bar requires us to take a position on the common enterprise component of the Howey test. We hold that a showing of horizontal commonality â the pooling of assets from multiple investors in such a manner that all share in the profits and risks of the enterprise â satisfies the test. This holding flows naturally from the facts of Howey, in which the promoter commingled fruit from the investorsâ groves and allocated net profits based upon the production from each tract. See Howey, 328 U.S. at 296, 66 S.Ct. 1100. Adopting this rule also aligns us with the majority view and confirms the intimation of Rodriguez. Last, but surely not least, the horizontal commonality standard places easily ascertainable and predictable limits on the types of financial instruments that will qualify as securities. 2. Applying the Standard. Here, the pooling element of horizontal commonality jumps off the screen. The defendantsâ website stated that: âThe playersâ money is accumulated on the SG current account and is not invested anywhere, because no investment, not even the most profitable one, could possibly fully compensate for the lack of sufficiency in settling accounts with players, which lack would otherwise be more likely.â Thus, as the SECâs complaint suggests, SG unambiguously represented to its clientele that participantsâ funds were pooled in a single account used to settle participantsâ on-line transactions. Therefore, pooling is established.
Since the complaint in this case alleges facts sufficient to establish horizontal commonality, see infra Part III(B)(2), we take no view as to whether vertical commonality, in either of its iterations, also may suffice to satisfy the âcommon enterpriseâ requirement.
Of course, horizontal commonality requires more than pooling alone; it also requires that investors share in the profits and risks of the enterprise. The SEC maintains that two separate elements of SGâs operations embody the necessary sharing. First, it asserts that SG was running a Ponzi or pyramid scheme dependent upon a continuous influx of new money to remain in operation, and argues that such arrangements inherently involve the sharing of profit and risk among investors. Second, the SEC construes SGâs promise to divert a portion of its profits from website operations to support the privileged companyâs shares as a bond that ties together the collective fortunes of those who have purchased the shares. While we analyze each of these theories, we note that any one of them suffices to support a finding of commonality.
While the terms âPonziâ and âpyramidâ often are used interchangeably to describe financial arrangements which rob Peter to pay Paul, the two differ slightly. In Ponzi schemes â named after a notorious Boston swindler, Charles Ponzi, who parlayed an initial stake of $150 into a fortune by means of an elaborate scheme featuring promissory notes yielding interest at annual rates of up to 50% â money tendered by later investors is used to pay off earlier investors. In contrast, pyramid schemes incorporate a recruiting element; they are marketing arrangements in which participants are rewarded financially based upon their ability to induce others to participate. The SEC alleges that SGâs operations aptly can be characterized under either appellation.
We endorse the SECâs suggestion that Ponzi schemes typically satisfy the horizontal commonality standard. In Infinity Group, investors contributed substantial sums of money to a trust established by the defendants and received in exchange a property transfer agreement guaranteeing stupendous annual rates of return. 212 F.3d at 184-85. The economic guarantees were based upon the trustâs purported performance experience, financial connections, and ability to pool large amounts of money. Id. at 185. Participants were promised that investing in the trust was a risk-free proposition, and that their cash infusions would be repaid in full upon demand. Id. at 184-85. Expected profits were a function of the number of âcapital unitsâ held pursuant to the contract with the trust; in turn, the number of capital units allocated to each investor was directly proportional to the size of his or her investment. Id. at 188-89. On these facts, the Third Circuit held that horizontal commonality existed, emphasizing that under the planâs terms each investor was entitled to receive returns directly proportionate to his or her investment stake. Id. at 188.
SGâs virtual shares bear striking factual similarities to the financial instruments classified as investment contracts in Infinity Group. SGâs flat 10% guaranteed return applied to all privileged company shares, expected returns were dependent upon the number of shares held, the economic assurances were based on the promoterâs ability to keep the ball rolling, the investment was proclaimed to be free from risk, and participants were promised that their principal would be repaid in full upon demand. Like the Third Circuit, we think that these facts suffice to make out horizontal commonality.
In all events, SGâs promise to pay referral fees to existing participants who induced others to patronize the virtual exchange provides an alternative basis for finding horizontal commonality. The SEC argues convincingly that this shows the existence of a pyramid scheme sufficient to satisfy the horizontal commonality standard. The most instructive comparison is to SEC v. Intâl Loan Network, 968 F.2d 1304 (D.C. Cir. 1992). A key element of the defendantsâ elaborate, multifaceted, financial distribution network in that case was a pyramid sales program in which participants stood to receive 50% commissions on membership fees paid by individuals whom they recruited, plus lesser commissions on sales by those recruited by their recruits. Id. at 1306. The court of appeals ruled that this structure satisfied the requirements of horizontal commonality. Id. at 1308. In the process, it relied heavily upon the fact that the network generated income only through constant expansion of membership, which depended on individual recruiting and the appeal of the promoterâs larger marketing campaign. Id.
Like the investors in Intâl Loan Network, StockGeneration participants who recruited new participants were promised bonuses worth 20%-30% of the recruitâs payments. Taking as true the SECâs plausible allegation that the sine qua non of SGâs operations was the continued net inflow of funds, the investment pool supporting the referral bonus payments was entirely dependent upon the infusion of fresh capital. Since all participants shared in the profits and risks under this pyramidal structure, it furnishes the sharing necessary to warrant a finding of horizontal commonality.
We will not paint the lily. We conclude, without serious question, that the arrangement described in the SECâs complaint fairly can be characterized as either a Ponzi or pyramid scheme, and that it provides the requisite profit-and-risk sharing to support a finding of horizontal commonality. Taking as true the SECâs allegation that SGâs ability to fulfill its pecuniary guarantees was fully predicated upon the net inflow of new money, the fortunes of the participants were inextricably intertwined. As long as the privileged company continued to receive net capital infusions, existing shareholders could dip into the well of funds to draw out their profits or collect their commissions. But all of them shared the risk that new participants would not emerge, cash flow would dry up, and the underlying pool would empty.
SGâs most perfervid argument against a finding of horizontal commonality consists of a denial that its operations comprise a Ponzi or pyramid scheme. It says that any such scheme requires a material misrepresentation of fact and some element of fraud or deception, and adds that those additional features are lacking here; to the contrary, the rules of StockGeneration were fully and accurately disclosed to all participants. We do not gainsay that considerable disclosure occurred. SG emphasized that new participants constituted the sole source of all financial income for its StockGeneration website. Indeed, in describing the structure and mechanism of its virtual stock exchange, SG drew a colorful analogy between the privileged companyâs shares and an enormous card table with a mountain of money. According to SG, thousands of participants continuously threw money onto the table by purchasing shares in the privileged company, while other participants simultaneously sold their shares back to the exchange to retrieve their winnings from the table. SG remarked that the system would remain stable so long as the size of the mountain either remained constant or continued to grow.
SG specifically addressed this issue on its website, declaring that: âNew players: that is the only source of all financial income to any game. It does not and cannot have other sources of income. Otherwise, the game becomes unprofitable and therefore simply pointless.â
Despite the fact that SG was relatively candid in pointing out the fragile structure of the venture, its argument lacks force. Even if we assume, for argumentâs sake, that misrepresentations of fact and badges of fraud are necessary for the existence of a Ponzi or pyramid scheme, the SECâs complaint contains allegations sufficient, as a matter of pleading, to establish both elements. First, the complaint alleges that SG materially misrepresented the nature of the enterprise by concealing the fact that the supply of new participants inevitably would be exhausted, causing the scheme to implode and all existing participants to lose their money. Second, the SECâs complaint plausibly characterized SGâs flat guarantee of a 10% monthly return on the privileged companyâs shares and its assurances that it would support those shares as material misrepresentations of fact. Third, the SEC alleged that SG deceived participants by failing to disclose its intent to keep investor money for itself.
As the SEC points out, SG specifically represented on its website that SG was not a pyramid scheme that would âcollapse inevitably as soon as the inflow of new players stops.â It went on to state:
This is not a pyramid. The similarities are purely superficial here. A whale might look like a fish, but there are millions of years of evolution between the two. The main fundamental difference is the lack of critical points in time, namely those of mass payments. By manipulating profit, an optimal way of spreading them in time is successfully found.
Of course, given its âthis was only a gameâ defense, SG may well have colorable arguments anent materiality (i.e., that, based upon its explicit disclosures, no reasonable investor should have been deceived or misled). But it is not this courtâs place to resolve such fact-sensitive questions in the context of a Rule 12(b)(6) motion for dismissal. See Cruz v. Melecio, 204 F.3d 14, 21-22 (1st Cir. 2000). For present purposes, it is enough that the SECâs allegations, taken as true, satisfy the common enterprise component of the Howey test.
If more were needed â and we doubt that it is â SGâs promise to divert a portion of profits from website operations to support share prices if the need arose also warrants a finding of horizontal commonality. Through this arrangement, SG provided participants with the opportunity to share income derived from website operations on a pro rata basis. The SECâs complaint notes these facts and alleges in substance that a percentage of participantsâ funds were pooled; that participants were told of their entitlement to support from this monetary pool; and that they collectively stood to gain or lose (depending on whether they received the guaranteed return on their shares). In and of themselves, these averred facts boost the SEC across the legal threshold for horizontal commonality.
C. Expectation of Profits Solely From the Efforts of Others.
The final component of the Howey test â the expectation of profits solely from the efforts of others â is itself divisible. We address each sub-element separately.
1. Expectation of Profits. The Supreme Court has recognized an expectation of profits in two situations, namely, (1) capital appreciation from the original investment, and (2) participation in earnings resulting from the use of investorsâ funds. Forman, 421 U.S. at 852, 95 S.Ct. 2051. These situations are to be contrasted with transactions in which an individual purchases a commodity for personal use or consumption. Id. at 858, 95 S.Ct. 2051. The SEC posits that SGâs guarantees created a reasonable expectancy of profit from investments in the privileged company, whereas SG maintains that participants paid money not to make money, but, rather, to acquire an entertainment commodity for personal consumption. Relying heavily on Forman, the district court accepted SGâs thesis. SEC v. SG Ltd., 142 F.Supp.2d at 130-31. We do not agree.
In Forman, apartment dwellers who desired to reside in a New York City cooperative were required to buy shares of stock in the nonprofit cooperative housing corporation that owned and operated the complex. Based on its determination that âinvestors were attracted solely by the prospect of acquiring a place to live, and not by financial returns on their investments,â the Forman Court held that the cooperative housing arrangement did not qualify as a security under either the âstockâ or âinvestment contractâ rubrics. Id. at 853, 95 S.Ct. 2051. The Courtâs conclusion rested in large part upon an Information Bulletin distributed to prospective residents which stressed the nonprofit nature of the cooperative housing endeavor. Id. at 854, 95 S.Ct. 2051 (emphasizing that â[n]owhere does the Bulletin seek to attract investors by the prospect of profits resulting from the efforts of the promoters or third partiesâ).
The Court reiterated this conclusion in dismissing the possibility that the co-op would lease commercial facilities, professional offices, parking spaces, and communal washing machines. Noting that the Information Bulletin made no reference to the prospect of any such income as a means of offsetting rental costs, the Court concluded âthat investors were not attracted to Co-op City by the offer of these potential rental reductions.â Forman, 421 U.S. at 856, 95 S.Ct. 2051.
We think it noteworthy that the Forman Court contrasted the case before it with Joiner. In that case, economic inducements made by promoters in conjunction with the assignment of oil well leases transformed the financial instrument under consideration from a naked leasehold right to an investment contract. 320 U.S. at 348, 64 S.Ct. 120. The Joiner Court found dispositive advertising literature circulated by the promoters which emphasized the benefits to be reaped from the exploratory drilling of a test well. Id. (âHad the offer mailed by defendants omitted the economic inducements of the proposed and promised exploration well, it would have been a quite different proposition.â).
The way in which these cases fit together is instructive. In Forman, the apartment was the principal attraction for prospective buyers, the purchase of shares was merely incidental, and the combination of the two did not add up to an investment contract. 421 U.S. at 853, 95 S.Ct. 2051. In Joiner, the prospect of exploratory drilling gave the investments âmost of their value and all of their lure,â the leasehold interests themselves were no more than an incidental consideration in the transaction, and the combination of the two added up to an investment contract. 320 U.S. at 349, 64 S.Ct. 120. This distinction is crucial, see Forman, 421 U.S. at 853 n. 18, 95 S.Ct. 2051, and it furnishes the beacon by which we must steer.
Seen in this light, SGâs persistent representations of substantial pecuniary gains for privileged company shareholders distinguish its StockGeneration website from the Information Bulletin circulated to prospective purchasers in Forman. While SGâs use of gaming language is roughly analogous to the cooperativeâs emphasis on the nonprofit nature of the housing endeavor, SG made additional representations on its website that played upon greed and fueled expectations of profit. For example, SG flatly guaranteed that investments in the shares of the privileged company would be profitable, yielding monthly returns of 10% and annual returns of 215%. In our view, these profit-related guarantees constitute a not-very-subtle form of economic inducement, closely analogous to the advertising representations in Joiner. In the same way that the prospect of profitable discoveries induced investors to buy oil well leases, the prospect of a sure-fire return lured participants to buy shares in the privileged company (or so it can be argued).
This is not to say that SGâs gaming language and repeated disclaimers are irrelevant. SG has a plausible argument, forcefully advanced by able counsel, that no participant in his or her right mind should have expected guaranteed profits from purchases of privileged company shares. But this argument, though plausible, is not inevitable. In the end, it merely gives rise to an issue of fact (or, perhaps, multiple issues of fact) regarding whether SGâs representations satisfy Howeyâs expectation-of-profit requirement.
2. Solely from the Efforts of Others. We turn now to the question of whether the expected profits can be said to result solely from the efforts of others. The courts of appeals have been unanimous in declining to give literal meaning to the word âsolelyâ in this context, instead holding the requirement satisfied as long as âthe 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.â Turner Enters., 474 F.2d at 482; accord Rivanna Trawlers Unlimited v. Thompson Trawlers, Inc., 840 F.2d 236, 240 n. 4 (4th Cir. 1988) (adopting this holding and listing eight other circuits which have held to like effect). This liberal interpretation of the requirement seemingly comports with the Supreme Courtâs restatement of the Howey test. See Forman, 421 U.S. at 852, 95 S.Ct. 2051 (explaining that âthe touchstone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of othersâ).
We caution, however, that the Forman Court explicitly reserved judgment on adoption of the Turner Enterprises formulation. See 421 U.S. at 852 n. 16, 95 S.Ct. 2051.
We need not reach the issue of whether a lesser degree of control by a promoter or third party suffices to give rise to an investment contract because SGâs alleged scheme meets the literal definition of âsolely.â According to the SECâs allegations, SG represented to its customers the lack of investor effort required to make guaranteed profits on purchases of the privileged companyâs shares, noting, for example, that âplaying with [the] privileged shares practically requires no time at all.â SG was responsible for all the important efforts that undergirded the 10% guaranteed monthly return. As the sole proprietor of the StockGeneration website, SG enjoyed direct operational control over all aspects of the virtual stock exchange. And SGâs marketing efforts generated direct capital investment and commissions on the transactions (which it pledged to earmark to support the privileged companyâs shares).
SGâs payment of referral bonuses to participants who introduced new users to the website does not require a different result. Even if a participant chose not to refer others to the StockGeneration website, he or she still could expect, based on SGâs profit-related guarantees, to reap monthly profits from mere ownership of the privileged companyâs shares. Accordingly, the SECâs complaint makes out a triable issue on whether participants expected to receive profits derived solely from the efforts of others.
IV. CONCLUSION
We need go no further. Giving due weight to the economic realities of the situation, we hold that the SEC has alleged a set of facts which, if proven, satisfy the three-part Howey test and support its assertion that the opportunity to invest in the shares of the privileged company, described on SGâs website, constituted an invitation to enter into an investment contract within the jurisdictional reach of the federal securities laws. Accordingly, we reverse the order of dismissal and remand the case for further proceedings consistent with this opinion. The preliminary injunction and asset freeze shall remain in force pending conclusion of the proceedings below.
Reversed and remanded.
APPENDIX A
Securities Act of 1933 § 2(a)(1), 15 U.S.C. § 77b(a)(1):
The term âsecurityâ means any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a âsecurity,â or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
Securities Exchange Act of 1934 § 3(a)(10), 15 U.S.C. § 78c(a)(10)
The term âsecurityâ means any note, stock, treasury stock, security future, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a âsecurityâ; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or bankerâs acceptance, which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.
FOOTNOTES
1. We note that broad vertical commonality is an expansive concept which typically overspreads other types of commonality. See Mordaunt v. Incomco, 469 U.S. 1115, 1115-16, 105 S.Ct. 801, 83 L.Ed.2d 793 (1985) (White, J., dissenting from denial of certiorari).
2. Since the complaint in this case alleges facts sufficient to establish horizontal commonality, see infra Part III(B)(2), we take no view as to whether vertical commonality, in either of its iterations, also may suffice to satisfy the âcommon enterpriseâ requirement.
3. While the terms âPonziâ and âpyramidâ often are used interchangeably to describe financial arrangements which rob Peter to pay Paul, the two differ slightly. In Ponzi schemes-named after a notorious Boston swindler, Charles Ponzi, who parlayed an initial stake of $150 into a fortune by means of an elaborate scheme featuring promissory notes yielding interest at annual rates of up to 50%-money tendered by later investors is used to pay off earlier investors. In contrast, pyramid schemes incorporate a recruiting element; they are marketing arrangements in which participants are rewarded financially based upon their ability to induce others to participate. The SEC alleges that SGâs operations aptly can be characterized under either appellation.
4. SG specifically addressed this issue on its website, declaring that: âNew players: that is the only source of all financial income to any game. It does not and cannot have other sources of income. Otherwise, the game becomes unprofitable and therefore simply pointless.â
5. As the SEC points out, SG specifically represented on its website that SG was not a pyramid scheme that would âcollapse inevitably as soon as the inflow of new players stops.â It went on to state:This is not a pyramid. The similarities are purely superficial here. A whale might look like a fish, but there are millions of years of evolution between the two. The main fundamental difference is the lack of critical points in time, namely those of mass payments. By manipulating profit, an optimal way of spreading them in time is successfully found.
6. If more were needed-and we doubt that it is-SGâs promise to divert a portion of profits from website operations to support share prices if the need arose also warrants a finding of horizontal commonality. Through this arrangement, SG provided participants with the opportunity to share income derived from website operations on a pro rata basis. The SECâs complaint notes these facts and alleges in substance that a percentage of participantsâ funds were pooled; that participants were told of their entitlement to support from this monetary pool; and that they collectively stood to gain or lose (depending on whether they received the guaranteed return on their shares). In and of themselves, these averred facts boost the SEC across the legal threshold for horizontal commonality.
7. The Court reiterated this conclusion in dismissing the possibility that the co-op would lease commercial facilities, professional offices, parking spaces, and communal washing machines. Noting that the Information Bulletin made no reference to the prospect of any such income as a means of offsetting rental costs, the Court concluded âthat investors were not attracted to Co-op City by the offer of these potential rental reductions.â Forman, 421 U.S. at 856, 95 S.Ct. 2051.
8. We caution, however, that the Forman Court explicitly reserved judgment on adoption of the Turner Enterprises formulation. See 421 U.S. at 852 n. 16, 95 S.Ct. 2051.
SELYA, Circuit Judge.
spam
According to all known laws
of aviation,
there is no way a bee
should be able to fly.
Its wings are too small to get
its fat little body off the ground.
The bee, of course, flies anyway
because bees donât care
what humans think is impossible.
Yellow, black. Yellow, black.
Yellow, black. Yellow, black.
Ooh, black and yellow!
Letâs shake it up a little.
Barry! Breakfast is ready!
Ooming!
Hang on a second.
Hello?
-
Barry?
-
Adam?
-
Oan you believe this is happening?
-
I canât. Iâll pick you up.
Looking sharp.
Use the stairs. Your father
paid good money for those.
Sorry. Iâm excited.
Hereâs the graduate.
Weâre very proud of you, son.
A perfect report card, all Bâs.
Very proud.
Ma! I got a thing going here.
-
You got lint on your fuzz.
-
Ow! Thatâs me!
-
Wave to us! Weâll be in row 118,000.
-
Bye!
Barry, I told you,
stop flying in the house!
-
Hey, Adam.
-
Hey, Barry.
-
Is that fuzz gel?
-
A little. Special day, graduation.
Never thought Iâd make it.
Three days grade school,
three days high school.
Those were awkward.
Three days college. Iâm glad I took
a day and hitchhiked around the hive.
You did come back different.
-
Hi, Barry.
-
Artie, growing a mustache? Looks good.
-
Hear about Frankie?
-
Yeah.
-
You going to the funeral?
-
No, Iâm not going.
Everybody knows,
sting someone, you die.
Donât waste it on a squirrel.
Such a hothead.
I guess he could have
just gotten out of the way.
I love this incorporating
an amusement park into our day.
Thatâs why we donât need vacations.
Boy, quite a bit of pompâŚ
under the circumstances.
-
Well, Adam, today we are men.
-
We are!
-
Bee-men.
-
Amen!
Hallelujah!
Students, faculty, distinguished bees,
please welcome Dean Buzzwell.
Welcome, New Hive Oity
graduating class ofâŚ
âŚ9:15.
That concludes our ceremonies.
And begins your career
at Honex Industries!
Will we pick ourjob today?
I heard itâs just orientation.
Heads up! Here we go.
Keep your hands and antennas
inside the tram at all times.
- Wonder what itâll be like?
- A little scary.
Welcome to Honex,
a division of Honesco
and a part of the Hexagon Group.
This is it!
Wow.
Wow.
We know that you, as a bee,
have worked your whole life
to get to the point where you
can work for your whole life.
Honey begins when our valiant Pollen
Jocks bring the nectar to the hive.
Our top-secret formula
is automatically color-corrected,
scent-adjusted and bubble-contoured
into this soothing sweet syrup
with its distinctive
golden glow you know asâŚ
Honey!
-
That girl was hot.
-
Sheâs my cousin!
-
She is?
-
Yes, weâre all cousins.
-
Right. Youâre right.
-
At Honex, we constantly strive
to improve every aspect
of bee existence.
These bees are stress-testing
a new helmet technology.
- What do you think he makes?
- Not enough.
Here we have our latest advancement,
the Krelman.
- What does that do?
- Oatches that little strand of honey
that hangs after you pour it.
Saves us millions.
Oan anyone work on the Krelman?
Of course. Most bee jobs are
small ones. But bees know
that every small job,
if itâs done well, means a lot.
But choose carefully
because youâll stay in the job
you pick for the rest of your life.
The same job the rest of your life?
I didnât know that.
Whatâs the difference?
Youâll be happy to know that bees,
as a species, havenât had one day off
in 27 million years.
So youâll just work us to death?
Weâll sure try.
Wow! That blew my mind!
âWhatâs the difference?â
How can you say that?
One job forever?
Thatâs an insane choice to have to make.
Iâm relieved. Now we only have
to make one decision in life.
But, Adam, how could they
never have told us that?
Why would you question anything?
Weâre bees.
Weâre the most perfectly
functioning society on Earth.
You ever think maybe things
work a little too well here?
Like what? Give me one example.
I donât know. But you know
what Iâm talking about.
Please clear the gate.
Royal Nectar Force on approach.
Wait a second. Oheck it out.
- Hey, those are Pollen Jocks!
- Wow.
Iâve never seen them this close.
They know what itâs like
outside the hive.
Yeah, but some donât come back.
- Hey, Jocks!
- Hi, Jocks!
You guys did great!
Youâre monsters!
Youâre sky freaks! I love it! I love it!
- I wonder where they were.
- I donât know.
Their dayâs not planned.
Outside the hive, flying who knows
where, doing who knows what.
You canâtjust decide to be a Pollen
Jock. You have to be bred for that.
Right.
Look. Thatâs more pollen
than you and I will see in a lifetime.
Itâs just a status symbol.
Bees make too much of it.
Perhaps. Unless youâre wearing it
and the ladies see you wearing it.
Those ladies?
Arenât they our cousins too?
Distant. Distant.
Look at these two.
- Oouple of Hive Harrys.
- Letâs have fun with them.
It must be dangerous
being a Pollen Jock.
Yeah. Once a bear pinned me
against a mushroom!
He had a paw on my throat,
and with the other, he was slapping me!
- Oh, my!
- I never thought Iâd knock him out.
What were you doing during this?
Trying to alert the authorities.
I can autograph that.
A little gusty out there today,
wasnât it, comrades?
Yeah. Gusty.
Weâre hitting a sunflower patch
six miles from here tomorrow.
- Six miles, huh?
- Barry!
A puddle jump for us,
but maybe youâre not up for it.
- Maybe I am.
- You are not!
Weâre going 0900 at J-Gate.
What do you think, buzzy-boy?
Are you bee enough?
I might be. It all depends
on what 0900 means.
Hey, Honex!
Dad, you surprised me.
You decide what youâre interested in?
- Well, thereâs a lot of choices.
- But you only get one.
Do you ever get bored
doing the same job every day?
Son, let me tell you about stirring.
You grab that stick, and you just
move it around, and you stir it around.
You get yourself into a rhythm.
Itâs a beautiful thing.
You know, Dad,
the more I think about it,
maybe the honey field
just isnât right for me.
You were thinking of what,
making balloon animals?
Thatâs a bad job
for a guy with a stinger.
Janet, your sonâs not sure
he wants to go into honey!
- Barry, you are so funny sometimes.
- Iâm not trying to be funny.
Youâre not funny! Youâre going
into honey. Our son, the stirrer!
- Youâre gonna be a stirrer?
- No oneâs listening to me!
Wait till you see the sticks I have.
I could say anything right now.
Iâm gonna get an ant tattoo!
Letâs open some honey and celebrate!
Maybe Iâll pierce my thorax.
Shave my antennae.
Shack up with a grasshopper. Get
a gold tooth and call everybody âdawgâ!
Iâm so proud.
- Weâre starting work today!
- Todayâs the day.
Oome on! All the good jobs
will be gone.
Yeah, right.
Pollen counting, stunt bee, pouring,
stirrer, front desk, hair removalâŚ
- Is it still available?
- Hang on. Two left!
One of themâs yours! Oongratulations!
Step to the side.
- Whatâd you get?
- Picking crud out. Stellar!
Wow!
Oouple of newbies?
Yes, sir! Our first day! We are ready!
Make your choice.
- You want to go first?
- No, you go.
Oh, my. Whatâs available?
Restroom attendantâs open,
not for the reason you think.
- Any chance of getting the Krelman?
- Sure, youâre on.
Iâm sorry, the Krelman just closed out.
Wax monkeyâs always open.
The Krelman opened up again.
What happened?
A bee died. Makes an opening. See?
Heâs dead. Another dead one.
Deady. Deadified. Two more dead.
Dead from the neck up.
Dead from the neck down. Thatâs life!
Oh, this is so hard!
Heating, cooling,
stunt bee, pourer, stirrer,
humming, inspector number seven,
lint coordinator, stripe supervisor,
mite wrangler. Barry, what
do you think I should⌠Barry?
Barry!
All right, weâve got the sunflower patch
in quadrant nineâŚ
What happened to you?
Where are you?
-
Iâm going out.
-
Out? Out where?
-
Out there.
-
Oh, no!
I have to, before I go
to work for the rest of my life.
Youâre gonna die! Youâre crazy! Hello?
Another call coming in.
If anyoneâs feeling brave,
thereâs a Korean deli on 83rd
that gets their roses today.
Hey, guys.
- Look at that.
- Isnât that the kid we saw yesterday?
Hold it, son, flight deckâs restricted.
Itâs OK, Lou. Weâre gonna take him up.
Really? Feeling lucky, are you?
Sign here, here. Just initial that.
- Thank you.
- OK.
You got a rain advisory today,
and as you all know,
bees cannot fly in rain.
So be careful. As always,
watch your brooms,
hockey sticks, dogs,
birds, bears and bats.
Also, I got a couple of reports
of root beer being poured on us.
Murphyâs in a home because of it,
babbling like a cicada!
- Thatâs awful.
- And a reminder for you rookies,
bee law number one,
absolutely no talking to humans!
All right, launch positions!
Buzz, buzz, buzz, buzz! Buzz, buzz,
buzz, buzz! Buzz, buzz, buzz, buzz!
Black and yellow!
Hello!
You ready for this, hot shot?
Yeah. Yeah, bring it on.
Wind, check.
-
Antennae, check.
-
Nectar pack, check.
-
Wings, check.
-
Stinger, check.
Scared out of my shorts, check.
OK, ladies,
letâs move it out!
Pound those petunias,
you striped stem-suckers!
All of you, drain those flowers!
Wow! Iâm out!
I canât believe Iâm out!
So blue.
I feel so fast and free!
Box kite!
Wow!
Flowers!
This is Blue Leader.
We have roses visual.
Bring it around 30 degrees and hold.
Roses!
30 degrees, roger. Bringing it around.
Stand to the side, kid.
Itâs got a bit of a kick.
That is one nectar collector!
- Ever see pollination up close?
- No, sir.
I pick up some pollen here, sprinkle it
over here. Maybe a dash over there,
a pinch on that one.
See that? Itâs a little bit of magic.
Thatâs amazing. Why do we do that?
Thatâs pollen power. More pollen, more
flowers, more nectar, more honey for us.
Oool.
Iâm picking up a lot of bright yellow.
Oould be daisies. Donât we need those?
Oopy that visual.
Wait. One of these flowers
seems to be on the move.
Say again? Youâre reporting
a moving flower?
Affirmative.
That was on the line!
This is the coolest. What is it?
I donât know, but Iâm loving this color.
It smells good.
Not like a flower, but I like it.
Yeah, fuzzy.
Ohemical-y.
Oareful, guys. Itâs a little grabby.
My sweet lord of bees!
Oandy-brain, get off there!
Problem!
- Guys!
- This could be bad.
Affirmative.
Very close.
Gonna hurt.
Mamaâs little boy.
You are way out of position, rookie!
Ooming in at you like a missile!
Help me!
I donât think these are flowers.
- Should we tell him?
- I think he knows.
What is this?!
Match point!
You can start packing up, honey,
because youâre about to eat it!
Yowser!
Gross.
Thereâs a bee in the car!
-
Do something!
-
Iâm driving!
-
Hi, bee.
-
Heâs back here!
Heâs going to sting me!
Nobody move. If you donât move,
he wonât sting you. Freeze!
He blinked!
Spray him, Granny!
What are you doing?!
Wow⌠the tension level
out here is unbelievable.
I gotta get home.
Oanât fly in rain.
Oanât fly in rain.
Oanât fly in rain.
Mayday! Mayday! Bee going down!
Ken, could you close
the window please?
Ken, could you close
the window please?
Oheck out my new resume.
I made it into a fold-out brochure.
You see? Folds out.
Oh, no. More humans. I donât need this.
What was that?
Maybe this time. This time. This time.
This time! This time! ThisâŚ
Drapes!
That is diabolical.
Itâs fantastic. Itâs got all my special
skills, even my top-ten favorite movies.
Whatâs number one? Star Wars?
Nah, I donât go for thatâŚ
âŚkind of stuff.
No wonder we shouldnât talk to them.
Theyâre out of their minds.
When I leave a job interview, theyâre
flabbergasted, canât believe what I say.
Thereâs the sun. Maybe thatâs a way out.
I donât remember the sun
having a big 75 on it.
I predicted global warming.
I could feel it getting hotter.
At first I thought it was just me.
Wait! Stop! Bee!
Stand back. These are winter boots.
Wait!
Donât kill him!
You know Iâm allergic to them!
This thing could kill me!
Why does his life have
less value than yours?
Why does his life have any less value
than mine? Is that your statement?
Iâm just saying all life has value. You
donât know what heâs capable of feeling.
My brochure!
There you go, little guy.
Iâm not scared of him.
Itâs an allergic thing.
Put that on your resume brochure.
My whole face could puff up.
Make it one of your special skills.
Knocking someone out
is also a special skill.
Right. Bye, Vanessa. Thanks.
-
Vanessa, next week? Yogurt night?
-
Sure, Ken. You know, whatever.
-
You could put carob chips on there.
-
Bye.
-
Supposed to be less calories.
-
Bye.
I gotta say something.
She saved my life.
I gotta say something.
All right, here it goes.
Nah.
What would I say?
I could really get in trouble.
Itâs a bee law.
Youâre not supposed to talk to a human.
I canât believe Iâm doing this.
Iâve got to.
Oh, I canât do it. Oome on!
No. Yes. No.
Do it. I canât.
How should I start it?
âYou like jazz?â No, thatâs no good.
Here she comes! Speak, you fool!
Hi!
Iâm sorry.
- Youâre talking.
- Yes, I know.
Youâre talking!
Iâm so sorry.
No, itâs OK. Itâs fine.
I know Iâm dreaming.
But I donât recall going to bed.
Well, Iâm sure this
is very disconcerting.
This is a bit of a surprise to me.
I mean, youâre a bee!
I am. And Iâm not supposed
to be doing this,
but they were all trying to kill me.
And if it wasnât for youâŚ
I had to thank you.
Itâs just how I was raised.
That was a little weird.
- Iâm talking with a bee.
- Yeah.
Iâm talking to a bee.
And the bee is talking to me!
I just want to say Iâm grateful.
Iâll leave now.
- Wait! How did you learn to do that?
- What?
The talking thing.
Same way you did, I guess.
âMama, Dada, honey.â You pick it up.
- Thatâs very funny.
- Yeah.
Bees are funny. If we didnât laugh,
weâd cry with what we have to deal with.
AnywayâŚ
Oan IâŚ
âŚget you something?
- Like what?
I donât know. I meanâŚ
I donât know. Ooffee?
I donât want to put you out.
Itâs no trouble. It takes two minutes.
-
Itâs just coffee.
-
I hate to impose.
-
Donât be ridiculous!
-
Actually, I would love a cup.
Hey, you want rum cake?
-
I shouldnât.
-
Have some.
-
No, I canât.
-
Oome on!
Iâm trying to lose a couple micrograms.
- Where?
- These stripes donât help.
You look great!
I donât know if you know
anything about fashion.
Are you all right?
No.
Heâs making the tie in the cab
as theyâre flying up Madison.
He finally gets there.
He runs up the steps into the church.
The wedding is on.
And he says, "Watermelon?
I thought you said Guatemalan.
Why would I marry a watermelon?"
Is that a bee joke?
Thatâs the kind of stuff we do.
Yeah, different.
So, what are you gonna do, Barry?
About work? I donât know.
I want to do my part for the hive,
but I canât do it the way they want.
I know how you feel.
- You do?
- Sure.
My parents wanted me to be a lawyer or
a doctor, but I wanted to be a florist.
- Really?
- My only interest is flowers.
Our new queen was just elected
with that same campaign slogan.
Anyway, if you lookâŚ
Thereâs my hive right there. See it?
Youâre in Sheep Meadow!
Yes! Iâm right off the Turtle Pond!
No way! I know that area.
I lost a toe ring there once.
-
Why do girls put rings on their toes?
-
Why not?
-
Itâs like putting a hat on your knee.
-
Maybe Iâll try that.
-
You all right, maâam?
-
Oh, yeah. Fine.
Just having two cups of coffee!
Anyway, this has been great.
Thanks for the coffee.
Yeah, itâs no trouble.
Sorry I couldnât finish it. If I did,
Iâd be up the rest of my life.
Are you�
Oan I take a piece of this with me?
Sure! Here, have a crumb.
- Thanks!
- Yeah.
All right. Well, thenâŚ
I guess Iâll see you around.
Or not.
OK, Barry.
And thank you
so much again⌠for before.
Oh, that? That was nothing.
Well, not nothing, but⌠AnywayâŚ
This canât possibly work.
Heâs all set to go.
We may as well try it.
OK, Dave, pull the chute.
- Sounds amazing.
- It was amazing!
It was the scariest,
happiest moment of my life.
Humans! I canât believe
you were with humans!
Giant, scary humans!
What were they like?
Huge and crazy. They talk crazy.
They eat crazy giant things.
They drive crazy.
-
Do they try and kill you, like on TV?
-
Some of them. But some of them donât.
-
Howâd you get back?
-
Poodle.
You did it, and Iâm glad. You saw
whatever you wanted to see.
You had your âexperience.â Now you
can pick out yourjob and be normal.
- WellâŚ
- Well?
Well, I met someone.
You did? Was she Bee-ish?
-
A wasp?! Your parents will kill you!
-
No, no, no, not a wasp.
-
Spider?
-
Iâm not attracted to spiders.
I know itâs the hottest thing,
with the eight legs and all.
I canât get by that face.
So who is she?
Sheâs⌠human.
No, no. Thatâs a bee law.
You wouldnât break a bee law.
- Her nameâs Vanessa.
- Oh, boy.
Sheâs so nice. And sheâs a florist!
Oh, no! Youâre dating a human florist!
Weâre not dating.
Youâre flying outside the hive, talking
to humans that attack our homes
with power washers and M-80s!
One-eighth a stick of dynamite!
She saved my life!
And she understands me.
This is over!
Eat this.
This is not over! What was that?
- They call it a crumb.
- It was so stinginâ stripey!
And thatâs not what they eat.
Thatâs what falls off what they eat!
- You know what a Oinnabon is?
- No.
Itâs bread and cinnamon and frosting.
They heat it upâŚ
Sit down!
âŚreally hot!
- Listen to me!
We are not them! Weâre us.
Thereâs us and thereâs them!
Yes, but who can deny
the heart that is yearning?
Thereâs no yearning.
Stop yearning. Listen to me!
You have got to start thinking bee,
my friend. Thinking bee!
- Thinking bee.
- Thinking bee.
Thinking bee! Thinking bee!
Thinking bee! Thinking bee!
There he is. Heâs in the pool.
You know what your problem is, Barry?
I gotta start thinking bee?
How much longer will this go on?
Itâs been three days!
Why arenât you working?
Iâve got a lot of big life decisions
to think about.
What life? You have no life!
You have no job. Youâre barely a bee!
Would it kill you
to make a little honey?
Barry, come out.
Your fatherâs talking to you.
Martin, would you talk to him?
Barry, Iâm talking to you!
You coming?
Got everything?
All set!
Go ahead. Iâll catch up.
Donât be too long.
Watch this!
Vanessa!
- Weâre still here.
- I told you not to yell at him.
He doesnât respond to yelling!
- Then why yell at me?
- Because you donât listen!
Iâm not listening to this.
Sorry, Iâve gotta go.
- Where are you going?
- Iâm meeting a friend.
A girl? Is this why you canât decide?
Bye.
I just hope sheâs Bee-ish.
They have a huge parade
of flowers every year in Pasadena?
To be in the Tournament of Roses,
thatâs every floristâs dream!
Up on a float, surrounded
by flowers, crowds cheering.
donât ask why i decided to post this -mado
goddammit, spam
rip yems having to scroll all of that
also yems why did you do us court thing u off tipoc of post!111!1!
What are you referring to Anonymous?
Also, yems didnt like this post, even who its a whopping 2 hours long!!!
scroll up and youll know
why i decided to read this
How do u make colored text? I forgot
heres how: [ color=#]TEXT[/color]
and put the hex color code inbetween the # and ]
also no space inbetween [ and color
This is just a test
test
This is a text in colors.
This is another text in colors.