If the investment is a “security”, you have to comply with the Securities and Exchange Commission regulations. The seminal case is Howey, where a sponsor was selling interests in an orange grove in Florida. The sponsor was not just selling the small land parcels with orange trees on them, but also his management, harvesting and sale of the oranges. It’s more like buying shares in Tropicana, so the investment scheme was considered an “investment contract” that fell within the definition of a security.
The SEC just filed a case against Agridime. The company allowed you to make money raising cattle. Seems like an interesting idea, support farmers and make money. Maybe you even get some meat from your own cow as part of the profit? (Not sure if that was a feature.) Of course, raising cattle takes a lot of work so why not have Agrdime do the work for you.
Investors never get delivery of the cattle and investors relied on Agridime to do all the work. That sounds a lot like the orange groves in Howey. If so, that makes the cattle contract a security and triggers the many securities regulations.
One of those regulations is that you can’t engage in the general solicitation of investors. Agridime advertised its cattle contracts on its own public website and on Facebook. Those are clear violations of the securities laws.
Agridime offered a guaranteed 15-20% yearly profits. “We know it sounds too good to be true.”
Yes, it was too good to be true according to the SEC. In the SEC complaint, the SEC alleges that the business was not profitable enough to pay those “guaranteed” returns. Agridime started using new investor money to pay returns to existing investors, instead of using the money on new cattle. It became a Ponzi scheme.
Before the SEC stepped in, North Dakota and Arizona had brought cases against Agridime to stop selling unregistered securities in their states. At least in Arizona, Agridime is taking the position that is a “registered and bonded livestock broker and marketing agency” under jurisdiction of the United States Department of Agriculture.
Now I’m scratching my head and wondering if the USDA has jurisdiction on cattle capital. Sure enough there are some regulations around custodial accounts and the payment of funds under the Packers and Stockyards Act of 1921.
I’m grabbing a bucket of popcorn to see how this one turns out.
Details:
- SEC Press Release: https://www.sec.gov/news/press-release/2023-250
- SEC Complaint: https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-250.pdf
- North Dakota cease and desist: https://www.securities.nd.gov/sites/www/files/documents/news/Agridime%20Press%20Release.pdf
- Arizona complaint: https://docket.images.azcc.gov/E000026016.pdf?i=1702565266697
- Agridime Response: https://docket.images.azcc.gov/E000028070.pdf?i=1702579599988
