                                                          FILED
                                              United States Court of Appeals
                                                      Tenth Circuit

                                                   February 24, 2014
                               PUBLISH            Elisabeth A. Shumaker
                                                      Clerk of Court
             UNITED STATES COURT OF APPEALS

                             TENTH CIRCUIT



SECURITIES AND EXCHANGE
COMMISSION,

      Plaintiff-Appellant,

v.

JEFFORY D. SHIELDS, a/k/a Jeffrey
D. Shields; GEODYNAMICS, INC.,
f/k/a or d/b/a Geodynamics
Exploration, Inc.,

      Defendants-Appellees,

and

GEODYNAMICS, INC.                            No. 12-1438
JOHNSTON’S CORNER #1 AND #2
JOINT VENTURE; GEODYNAMICS,
INC. HUSKIES #1 JOINT VENTURE;
GEODYNAMICS EXPLORATION,
INC. TRUMPETER #1 AND #2
JOINT VENTURE; GEODYNAMICS,
INC. EVDA #1 JOINT VENTURE;
FLORIBAMA OIL CORPORATION;
CARBOTEC, INC.; TRITON
ENERGY ASSET MANAGEMENT,
INC., d/b/a Triton Energy Asset
Management, LLC; GEODYNAMICS
PROPERTY MANAGEMENT, LLC;
T.E.A.M. PROPERTY
MANAGEMENT, LLC, d/b/a
T.E.A.M. Property Management;
 S & P ENERGY, LLC; AURUM
 ENERGY ASSOCIATES, LLC;
 UNUM, LLC,

      Relief Defendants-Appellees.
 __________________

 THE AMERICAN ENERGY JOINT
 VENTURE ASSOCIATION,

       Amicus Curiae.


                Appeal from the United States District Court
                        for the District of Colorado
                   (D.C. No. 1:11-CV-02121-REB-MJW)


Susan S. McDonald, Senior Litigation Counsel (Anne K. Small, General Counsel;
Michael A. Conley, Deputy General Counsel; Jacob H. Stillman, Solicitor; and
Benjamin Vetter, Attorney, with her on the briefs), of the Securities and
Exchange Commission, Washington, D.C., for Plaintiff-Appellant.

Paul H. Schwartz (Andrew R. Shoemaker and Alice Warren-Gregory, with him on
the brief) of Shoemaker Ghiselli & Schwartrz LLC, Boulder, Colorado, for
Amicus Curiae in support of Appellees.


Before BRISCOE, Chief Judge, SEYMOUR, and LUCERO, Circuit Judges.


SEYMOUR, Circuit Judge.



      The Securities and Exchange Commission (“SEC”) brought this civil

enforcement action against Defendant-Appellees Jeffory D. Shields,

GeoDynamics, Inc. (“GeoDynamics”), and several other business entities

                                      -2-
affiliated with Mr. Shields, alleging securities fraud in connection with four oil

and gas exploration and drilling ventures Mr. Shields, as managing partner of

GeoDynamics, marketed to thousands of investors nationwide as Joint Venture

Agreements (“JVAs”). The district court granted defendants’ Fed. R. Civ. P.

12(b)(6) motion to dismiss. The SEC appeals, contending that despite their labels

as JVAs, the investment agreements are actually “investment contracts” and thus

“securities” subject to federal securities regulations as defined by the Securities

Act of 1933 and the Securities Exchange Act of 1934 (collectively, the

“Securities Acts”). Because it cannot be said as a matter of law that the

investments at issue are not “investment contracts,” we reverse.



                                          I

      “In a securities case, we may consider, in addition to the complaint,

documents incorporated by reference into the complaint, public documents filed

with the SEC, and documents the plaintiffs relied upon in bringing suit.” Slater v.

A.G. Edwards & Sons, Inc., 719 F.3d 1190, 1196 (10th Cir. 2013); see also

Prager v. LaFaver, 180 F.3d 1185, 1189 (10th Cir. 1999) (on review from grant

of 12(b)(6) motion, court may consider documents referred to in complaint that

are “central to [the plaintiff’s] claim”). The following facts are taken from the

factual allegations in the SEC’s complaint together with the offering documents

central to this case.

                                         -3-
      Mr. Shields is a resident of Larkspur, Colorado. 1 In September 2009, he

formed GeoDynamics, a Colorado corporation with its principal place of business

in Centennial, Colorado. According to the SEC, in order to fund GeoDynamics,

Mr. Shields initially obtained money by offering and selling more than five

million dollars worth of interests in four purported oil and gas exploration and

drilling joint ventures to sixty investors across twenty-eight states. Four of these

joint ventures are at issue in this case, including: Johnston’s Corner, created in

January 2010 and sold by GeoDynamics as Johnston Corner #1 and #2 Joint

Venture; Huskies, created in April 2010 and sold by GeoDynamics as Huskies #1

Joint Venture; Trumpeter, created in August 2010 and sold by GeoDynamics as

Trumpeter #1 and #2 Joint Venture; and EVDA, created in May 2011 and sold as

EVDA #1 Joint Venture. 2

      1
        Mr. Shields has had prior dealings in the oil and gas industry, including
involvement with one company that was sued for fraud by the State of Colorado.
He also has a felony record and is currently incarcerated at the Douglas County
Detention Facility in Colorado. Mr. Shields is proceeding pro se. He did not file
a brief but instead filed a letter joining in the amicus brief filed by the American
Energy Joint Venture Association in opposition to the SEC’s opening brief.
      2
        In its complaint, the SEC alleges that in addition to forming and
controlling GeoDynamics and the four purported joint ventures at issue in this
case, Mr. Shields “formed and/or controls” eight other “corporate entities to
create the illusion that various functions were segregated and/or managed by
others.” Aplt. App. at 19-20 ¶ 27. These companies include: Huskies Leasehold
Joint Venture, a purported joint venture with its principal place of business in
Centennial, Colorado; Floribama Oil Corporation, a Florida corporation with its
principal place of business in Pensacola, Florida; Carbotec, Inc., a Colorado
corporation with its principal place of business in Centennial, Colorado; Triton
                                                                        (continued...)

                                         -4-
      Mr. Shields’ sales strategy included marketing these oil and gas exploration

and drilling ventures by making nationwide cold calls to thousands of members of

the general public and promising investors annual returns between 256% and

548%. According to the SEC’s investigation, Mr. Shields initially solicited

investors by making cold calls himself. By 2010, however, he had hired and was

supervising more than a dozen salespersons, each making over 400 boiler room

cold calls a day to potential investors. As a result of this sales strategy, investors

were spread out across the entire country and had no prior relationship or contact

with each other.

      Mr. Shields, as managing partner of GeoDynamics, specifically marketed

these investments to members of the general public with little or no experience in

the oil and gas exploration business. During these sales pitches, the SEC

contends, Mr. Shields and his staff would specifically emphasize “the capabilities


      2
          (...continued)
Energy Asset Management, Inc., a Nevada corporation with its principal place of
business in Centennial, Colorado; T.E.A.M. Property Management, LLC, a
Colorado limited liability company with its principal place of business in
Centennial, Colorado; S & P Energy, LLC, a Colorado limited liability company
with its principal place of business in Centennial, Colorado; Aurum Energy
Associates, LLC, a Colorado limited liability company with its principal place of
business in Centennial, Colorado; and Unum, LLC, a Colorado limited liability
company with its principal place of business in Centennial, Colorado. The SEC
initially filed suit against Mr. Shields, GeoDynamics, the four joint venture
interests at issue in this appeal, and the above mentioned companies. It asserts in
its opening brief that these companies are all “relief” defendants “because they
may hold assets belonging to investors.” Aplt. Br. at 4 n.2; see SEC v. Cherif,
933 F.2d 403, 414 (7th Cir. 1991).

                                          -5-
and unique qualifications of GeoDynamics as an experienced oil and gas driller

and operator.” Aplt. App. at 34-35 ¶ 83. If an investor seemed interested after

the pitch, Mr. Shields would send the investor a packet of offering documents

which included: Confidential Information Memoranda (“CIMs”), which explained

how the venture would operate; one or more of the JVAs; and a Monthly Income

Conversion Table that outlined the expected annualized profits for each purported

joint venture. 3

       The offering documents state “the Venturers will have all of the rights and

will be subject to all of the liabilities of a General Partner under” Texas law, id.

at 104, and also note that GeoDynamics, as managing venturer, “takes the

position that the joint venture interest are not securities,” id. at 19 ¶ 26. Under

the agreements, investors “expressly delegate[d] management of the day-to-day

Operations of the Joint Venture[s]” to GeoDynamics as managing venturer. Id. at

73 ¶ 4.1. GeoDynamics had broad powers to bind the joint ventures by executing

agreements and contracts on their behalf and spending funds raised, and had

exclusive power to interpret ambiguous provisions of the JVAs. Notably, no

investor had any power to bind the joint ventures.

       Investors did have the right to vote on certain matters, including the right to


       3
        The documents for each are essentially identical with only minor
differences, such as the price of the joint venture units for sale, the expected
profit for each venture, and the location of the oil wells.


                                         -6-
remove the managing venturer by a vote of 51% “in interest” of the venturers, id.

at 77 ¶ 5.7, and the right to terminate the partnership. They also had the right to

develop procedures for partnership meetings, amend the partnership agreements,

and call partnership meetings. In addition, investors maintained the right to

inspect the accounting records and reports which, under the JVAs, the managing

venturer was required to provide to them, including annual reports concerning the

status of each venture. But the SEC alleges that Mr. Shields denied investors

access to information, including financial statements and reports for each joint

venture, even when investors specifically requested the information. Moreover,

the SEC alleges Mr. Shields consistently lied to investors on conference calls in

an attempt to keep them misinformed, raise more money, and prevent them from

challenging his actions.

      When an investor purchased an interest in one of the four purported joint

ventures, he or she would wire the funds or send a check to the GeoDynamics

account associated with the joint venture interest purchased. The offering

documents stated that funds raised for a specific venture would be deposited in a

separate account for each respective venture, and also explained that investors’

funds would be used to pay for the cost of drilling and completing the wells under

the provisions of the “turnkey” contracts executed solely with GeoDynamics.

Indeed, investors were required to enter into “turnkey” drilling and completion




                                         -7-
contracts with GeoDynamics in order to invest in any one of the ventures. 4 These

provisions of the offering documents essentially locked investors into drilling and

completion contracts exclusively with GeoDynamics, who unilaterally set the

contract prices before an investor purchased an interest in the venture.

      Notwithstanding the terms of the agreements, the SEC alleges that Mr.

Shields and GeoDynamics commingled all funds raised through investors and

deposited the money directly into accounts controlled by Mr. Shields.

GeoDynamics’ Chief Financial Officer “admitted in testimony during the SEC’s

investigation that there were no internal controls in place, and that she made no

effort to segregate funds of the respective joint ventures. Instead, at Shields’

direction, GeoDynamics’ CFO used funds from any available source to pay

Shields’ personal expenses, GeoDynamics’ administrative expenses, and various

operational expenses as they came due,” Aplt. App. at 30 ¶ 73, regardless of

whether they were related to the joint ventures. In fact, of the roughly five

million dollars raised from investors, over two million went directly to Mr.

      4
        The JVAs define the “Turnkey Drilling Contract” as “the Agreement to be
entered into by and between GeoDynamics and the Venture providing for the
obligation of the Managing Venturer to bear the cost of drilling of the Prospect
Well at a fixed price.” Aplt. App. at 69. The “Turnkey Drilling Price” is defined
as “the price to be paid by the Venture to GeoDynamics to perform the Turnkey
Drilling Contract.” Id. The “Turnkey Completion Contract” is defined as “the
Agreement to be entered into by and between GeoDynamics and the Venture
providing for the obligation of the Managing Venturer to bear the cost of
Completion of the Prospect Well at a fixed price.” Id. Finally, the “Turnkey
Completion Price” is defined as “the price to be paid by the Venture to
GeoDynamics to perform the Turnkey Completion Contract.” Id.

                                         -8-
Shields to pay for extravagant personal expenses, luxury items, and cash

withdrawals. 5

      Mr. Shields used an additional two million dollars of commingled investor

funds for general business expenses, which vastly exceeded the amount the

managing venturer was allowed to receive as monthly reimbursement under the

offering documents. In all, of the roughly five million dollars raised by Mr.

Shields and GeoDynamics, only $613,494 went to oil and gas development as of

April 2011. In fact, GeoDynamics never finished the drilling work planned for in

the offering materials, failed to produce any commercial quantities of oil or gas,

and made no payments to investors involved in any of the four purported joint

ventures. The SEC alleges Mr. Shields and GeoDynamics’ fraud “is ongoing,”

and that they continued to raise funds for EVDA and “solicited investors for

purported ‘completion funds’ for Trumpeter” and Huskies as recently as June

2011. Aplt. App. at 14 ¶ 6.

      In September 2011, the SEC filed suit against Mr. Shields, GeoDynamics,

the four joint ventures at interest in this appeal, and the relief defendants, alleging

violations under several civil enforcement provisions of the Securities Acts,

      5
        These expenditures included: $747,685 on a private Learjet; $236,444 on
luxury automobiles; $31,537 on limousine and helicopter rentals; $200,206 on
rent for multiple residences; $104,734 on sporting events; $26,434 on clothing
and lingerie; $2,062 on jewelry; $68,223 on home furnishings; $14,987 on
electronics; $39,205 on travel; and $467,129 to Mr. Shields via “cash
withdrawals, checks, or transfers to his personal bank accounts.” Aplt. App. at 25
¶¶ 50-51.

                                          -9-
including 15 U.S.C. §§ 77e(a), 77e(c), 77(q)(a), 78j(b), 78(o)(a), and Rule 10b-5.

The SEC seeks, among other things, “preliminary and permanent injunctions,

disgorgement plus-prejudgment and post-judgment interest, . . . an asset freeze,

an accounting, and other relief,” including recovery of all investor assets raised

by Mr. Shields and GeoDynamics and transferred to relief defendants. Aplt. App.

at 14 ¶ 7. Mr. Shields, GeoDynamics, the four joint venture interests at issue, and

all relief defendants filed a Rule 12(b)(6) motion to dismiss the SEC’s claims,

which the district court granted without prejudice in favor of all defendants. The

court held that the SEC’s allegations were “insufficient to state a plausible claim

that the joint venture interests at issue” were securities. Aplt. App. at 178.

      The SEC timely filed this appeal. It contends the district court erred in

granting the motion to dismiss, asserting that the investments Mr. Shields and

GeoDynamics sold were “investment contracts” and therefore securities.



                                          II

      We review “the district court’s dismissal under Rule 12(b)(6) de novo.”

United States ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1167

(10th Cir. 2010). “We accept as true all well-pleaded factual allegations in the

complaint and view them in the light most favorable to the [SEC].” Burnett v.

Mortg. Elec. Registration Sys., Inc., 706 F.3d 1231, 1235 (10th Cir. 2013). A

pleading is required to contain “a short and plain statement of the claim showing

                                         -10-
that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). “To survive a

motion to dismiss, a complaint must contain sufficient factual matter, accepted as

true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570

(2007) (“[W]e do not require heightened fact pleading of specifics, but only

enough facts to state a claim to relief that is plausible on its face.”)).

      In Khalik v. United Air Lines, we explained that under Iqbal and Twombly

“[a] plaintiff must ‘nudge [his] claims across the line from conceivable to

plausible’ in order to survive a motion to dismiss.” 671 F.3d 1188, 1190 (10th

Cir. 2012) (alteration in original) (quoting Twombly, 550 U.S. at 570). We noted

that “when legal conclusions are involved in the complaint ‘the tenet that a court

must accept as true all of the allegations contained in a complaint is inapplicable

to [those] conclusions.’” Id. (alteration in original) (quoting Iqbal, 556 U.S. at

678). “Thus, mere ‘labels and conclusions’ and ‘a formulaic recitation of the

elements of a cause of action’ will not suffice; a plaintiff must offer specific

factual allegations to support each claim.” Kan. Penn Gaming, LLC v. Collins,

656 F.3d 1210, 1214 (10th Cir. 2011) (quoting Twombly, 550 U.S. at 555). The

complaint must set forth sufficient factual allegations “to raise a right to relief

above the speculative level.” Twombly, 550 U.S. at 555. “A claim has facial

plausibility when the plaintiff pleads factual content that allows the court to draw

the reasonable inference that the defendant is liable for the misconduct alleged.”

                                           -11-
Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556).

      We further explained in Khalik that

      [i]n applying this new, refined standard, we have held that
      plausibility refers to the scope of the allegations in a complaint: if
      they are so general that they encompass a wide swath of conduct,
      much of it innocent, then the plaintiffs have not nudged their claims
      across the line from conceivable to plausible.

671 F.3d at 1191 (internal quotation marks and citations omitted). Notably, in

recognition that “[t]here is disagreement as to whether this new standard requires

minimal change or whether it in fact requires a significantly heightened fact-

pleading standard,” we clarified:

      [T]he Twombly/Iqbal standard is a middle ground between
      heightened fact pleading, which is expressly rejected, and allowing
      complaints that are no more than labels and conclusions or a
      formulaic recitation of the elements of a cause of action, which the
      Court stated will not do. In other words, Rule 8(a)(2) still lives. . . .
      [U]nder Rule 8, specific facts are not necessary; the statement need
      only give the defendant fair notice of what the . . . claim is and the
      grounds upon which it rests.

Id. at 1191-92 (internal quotation marks, citations, and alterations in original

omitted).

      We have stressed that the “nature and specificity of the allegations required

to state a plausible claim will vary based on context.” Kan. Penn Gaming, 656

F.3d at 1215. Making that determination “requires the reviewing court to draw on

its judicial experience and common sense.’” Burnett, 706 F.3d at 1236 (quoting

Iqbal, 556 U.S. at 679). Complaints which “do not allow for at least a


                                         -12-
‘reasonable inference’ of the legally relevant facts are insufficient.” Id. (quoting

Iqbal, 556 U.S. at 678).

      We apply these principles to our review of the SEC’s complaint to

determine whether the district court erred in granting the motion to dismiss.



                                         III

      The central issue raised on appeal is whether the investments sold by Mr.

Shields as managing partner of GeoDynamics are “investment contracts” and thus

“securities” subject to federal securities regulations. To shed light on this

question, we first examine the nature and purpose of the Securities Acts. 6

      Congress enacted the Securities Acts in response to “serious abuses in a

largely unregulated securities market,” and for the purpose of regulating

“investments, in whatever form they are made and by whatever name they are

called.” Reves, 494 U.S. at 60-61. Congress “painted with a broad brush” in

defining a “security” in recognition of the “virtually limitless scope of human

      6
        The Supreme Court has consistently held that § 2(a)(1) of the 1933 Act,
15 U.S.C. § 77b(a)(1), and § 3(a)(10) of the 1934 Act, 15 U.S.C. § 78c(a)(10),
while having “slightly different formulations,” are “treated as essentially identical
in meaning . . . .” SEC v. Edwards, 540 U.S. 389, 393 (2004) (citing Reves v.
Ernst & Young, 494 U.S. 56, 61 n.1 (1990)); see also United Hous. Found., Inc. v.
Forman, 421 U.S. 837, 847 & n.12 (1975) (“[T]he coverage of the two Acts may
be considered the same.”); SEC v. Thompson, 732 F.3d 1151, 1158 n.5 (10th Cir.
2013) (“The Supreme Court has repeatedly ruled that the definitions of ‘security’
in § 3(a)(10) of the 1934 Act and § 2(1) of the 1933 Act are virtually identical,
and should be treated as such in decisions dealing with the scope of the term.”
(internal quotation marks and citation omitted)).

                                         -13-
ingenuity, especially in the creation of ‘countless and variable schemes devised

by those who seek the use of the money of others on the promise of profits . . . .’”

Id. (quoting SEC v. W.J. Howey Co., 328 U.S. 293, 299 (1946)).

      To that end, as the Court explained, Congress “determined that the best way

to achieve its goal of protecting investors was to define the term security 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.” Id. at 61 (internal quotation marks and citations omitted).

In furtherance of that goal, Congress “did not attempt precisely to cabin the scope

of the Securities Acts,” but instead “enacted a definition of ‘security’ sufficiently

broad to encompass virtually any instrument that might be sold as an investment.”

Id. Accordingly, § 2(1) of the 1933 Act broadly defines the term security as:

      any note, stock, treasury stock, security future, security-based swap,
      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 “security”, 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.

48 Stat. 74 (codified as amended at 15 U.S.C. § 77b(a)(1)) (emphasis added).

                                         -14-
      The Supreme Court has further explained that “the coverage of the

antifraud provisions of the securities laws is not limited to instruments traded at

securities exchanges and over-the-counter markets, but extends to uncommon and

irregular instruments.” Marine Bank v. Weaver, 455 U.S. 551, 556 (1982). The

Court has “repeatedly held that the test is what character the instrument is given

in commerce by the terms of the offer, the plan of distribution, and the economic

inducements held out to the prospect.” Id. (internal quotation marks and citations

omitted). But the Court has cautioned that “Congress, in enacting the securities

laws, did not intend to provide a broad federal remedy for all fraud.” Id. at 556.

Thus, the “task has fallen to the [SEC] . . . and ultimately to the federal courts to

decide which of the myriad financial transactions in our society come within the

coverage of the [Securities Acts].” Reves, 494 U.S. at 61 (quoting Forman, 421

U.S. at 848) (internal quotation marks omitted).

      Although the Securities Acts broadly define a security, neither act

specifically defines an “investment contract.” Edwards, 540 U.S. at 393. The

Supreme Court first confronted this question in SEC v. W.J. Howey Co., where it

stated that the “test is whether the scheme involves an investment of money in a

common enterprise with profits to come solely from the efforts of others.” 328

U.S. at 301. 7 The test “embodies a flexible rather than static principle, one that is

      7
       In order to distinguish “an investment contract from other commercial
dealings,” the Howey “test has subsequently been broken down into three
                                                                          (continued...)

                                          -15-
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.” Id. at 299.

Building on Howey, the Court in Forman added:

      This test, in shorthand form, embodies the essential attributes that
      run through all of the Court’s decisions defining a security. The
      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 others.

421 U.S. at 852 (emphasis added).

      Importantly, the Court has expressly stated that in assessing whether an

investment scheme is an investment contract, “form should be disregarded for

substance,” id. at 848 (quoting Tcherepnin v. Knight, 389 U.S. 332, 336 (1967)

(internal quotation marks omitted)), and courts should focus on the “economic

realities underlying a transaction, and not on the name appended thereto,” id. at

849. We recently reiterated that courts should take this approach in order “to

capture and effectuate the regulation of ‘investments, in whatever form they are

made and by whatever name they are called.’” Thompson, 732 F.3d at 1158

(quoting Reves, 494 U.S. at 61); see also Maritan v. Birmingham Props., 875 F.2d

1451, 1456 (10th Cir. 1989); Woodward v. Terracor, 574 F.2d 1023, 1024 (10th


      7
          (...continued)
requirements: (1) an investment, (2) in a common enterprise, (3) with a
reasonable expectation of profits to be derived from the entrepreneurial or
managerial efforts of others.” Banghart v. Hollywood Gen. P’ship, 902 F.2d 805,
807 (10th Cir. 1990) (citing Crowley v. Montgomery Ward & Co., Inc., 570 F.2d
877, 880 (10th Cir. 1978) (Crowley II)).

                                        -16-
Cir. 1978); Williamson v. Tucker, 645 F.2d 404, 418 (5th Cir. 1981).

      Neither party disputes that the first two elements of the Howey test are

satisfied—that is, investors gave money directly to Mr. Shields and GeoDynamics

as part of a common investment scheme. Instead, the parties confine their central

argument to the third prong of the Howey test: whether the investment was

“premised on a reasonable expectation of profits to be derived from the

entrepreneurial or managerial efforts of others.” Forman, 421 U.S. at 852.

      The joint venture agreements here are denominated general partnerships

and our circuit applies a “strong presumption that an interest in a general

partnership is not a security,” mainly “because the partners-the investors-are

ordinarily granted significant control over the enterprise.” Banghart, 902 F.2d at

807-08. 8 Presented with this presumption, the SEC argues that we should adopt

      8
         The SEC contends we should not apply the presumption that general
partnership agreements are not investment contracts and thus not securities
because to do so disregards the Supreme Court’s substance over form principle
and “provides an unwarranted advantage in SEC enforcement actions to
unscrupulous promoters who sell investments with a veneer of partnership
structure to inexperienced and unknowledgeable investors on the promise of
profits.” Aplt. Br. at 27. However, one panel of this court is not at liberty to
overturn prior opinions of another panel. United States v. Meyers, 200 F.3d 715,
720 (10th Cir. 2000). Moreover, other circuits addressing this issue agree with us
that this presumption is appropriate. See, e.g., SEC v. Merch. Capital, LLC, 483
F.3d 747, 755 (11th Cir. 2007) (“A general partnership interest is presumed not to
be an investment contract because a general partner typically takes an active part
in managing the business and therefore does not rely solely on the efforts of
others.” (citing Williamson, 645 F.2d at 422)); Rivanna Trawlers Unltd. v.
Thompson Trawlers, Inc., 840 F.2d 236, 240 (4th Cir. 1988) (“General
Partnerships ordinarily are not considered investment contracts because they grant
                                                                        (continued...)

                                        -17-
the Fifth Circuit’s approach in Williamson v. Tucker, which discussed the types of

allegations that can rebut the presumption, 645 F.2d at 424, and then apply the

Williamson factors in evaluating whether the investors here expected profits

produced solely from the efforts of others. The SEC further contends the district

court erred in granting the motion to dismiss because the allegations in the

complaint are sufficient to rebut the presumption.

      The plaintiffs in Banghart principally relied on Williamson. We noted that

the court there “set forth three examples of when a general partnership interest

can be a security”:

      (1) an agreement among the parties leaves so little power in the
      hands of the partner or venturer that the arrangement in fact
      distributes power as would a limited partnership; or (2) the partner or
      venturer is so inexperienced and unknowledgeable in business affairs
      that he is incapable of intelligently exercising his partnership or
      venture powers; or (3) the partner or venturer is so dependent on
      some unique entrepreneurial or managerial ability of the promoter or
      manager that he cannot replace the manger of the enterprise or
      otherwise exercise meaningful partnership or venture powers.

Banghart, 902 F.2d at 807 (quoting Williamson, 645 F.2d at 424). Nevertheless,

we found it unnecessary to apply Williamson. We noted that our “decision in

      8
          (...continued)
partners-the investors-control over significant decisions of the enterprise.”
(citations omitted)); Youmans v. Simon, 791 F.2d 341, 346 (5th Cir. 1986)
(“[F]ederal security laws are usually held not generally to apply to general
partners . . . [because] they are entrepreneurs, not investors, and have the ability
to take care of their own interests because of the inherent powers available to
them.”); Goodwin v. Elkins & Co., 730 F.2d 99, 102-03 (3rd Cir. 1984) (same);
Odom v. Slavik, 703 F.2d 212, 215 (6th Cir. 1983) (same). The Supreme Court
has not held otherwise.

                                         -18-
Maritan v. Birmingham Properties, while not directly on point factually, clearly

indicates that our primary inquiry in the partnership setting is . . . on the powers

possessed by the partners.” Banghart, 902 F.2d at 807-08 (emphasis in original)

(citation omitted). We explained:

      In Maritan, we approved the analysis set forth in Matek v. Murat,
      862 F.2d 720, 730-32 (9th Cir. 1988) and Rivanna Trawlers
      Unlimited v. Thompson Trawlers, Inc., 840 F.2d 236, 241 (4th Cir.
      1988), where the courts held that regardless of the control actually
      exercised, if a partnership agreement retains real power in the
      general partners, then an investment in the general partnership is not
      a security.

Id. at 808. We therefore held that “[w]hen a partnership agreement allocates

powers to general partners that are specific and unambiguous and those powers

provide the general partners with access to information and the ability to protect

their investment, then the presumption is that the general partnership is not a

security.” Id. (citing Matek, 862 F.2d at 731; Rivanna, 840 F.2d at 241).

      But presumptions are not per se rules, and we recognized in Banghart that

the presumption can be rebutted “by evidence that the general partners were

rendered passive investors because they were somehow precluded from exercising

their powers of control and supervision.” Id. (citing Matek, 862 F.2d at 730-31;

Rivanna, 840 F.2d at 241). We then affirmed the district court’s directed verdict

in favor of the defendants because the plaintiffs had failed to present any such

evidence. Id.

      We are faced with different circumstances here where the SEC has

                                         -19-
proffered numerous allegations which it contends undermine the presumption that

an interest in a general partnership is not a security. This case persuades us that,

like a number of other circuits, 9 we should adopt the Fifth Circuit’s approach in

Williamson and apply its three non-exhaustive examples of how the presumption

may be rebutted. See Williamson, 645 F.2d at 424 n.15 (noting that other factors

could “also give rise to such a dependence on the promoter or manager that the

exercise of partnership powers would be effectively precluded”). As does the

Eleventh Circuit, we view the Williamson approach as a supplement to controlling

Supreme Court and circuit precedent in determining if allegations are sufficient to

raise a fact question regarding whether a particular investment is a security. See

Merch. Capital, 483 F.3d at 755 (“Williamson is ultimately simply a guide to

determining whether the partners expected to depend solely on the efforts of

others, thus satisfying the Howey test.”).

      We now turn to the central question on appeal—whether the district court

erred in holding the SEC failed to plead sufficient factual allegations in its

complaint to state a plausible claim that the investments at issue here satisfy the


      9
        See, e.g., United States v. Leonard, 529 F.3d 83, 90-91 (2d Cir. 2008)
(applying Williamson and finding investment contract notwithstanding documents
gave investors powers of control similar to general partnership); Merch. Capital,
LLC, 483 F.3d at 755-66 (same); Stone v. Kirk, 8 F.3d 1079, 1086 (6th Cir. 1993)
(same); Koch v. Hankins, 928 F.2d 1471, 1477-81 (9th Cir. 1991) (applying
Williamson to analyze whether general partnerships were investment contracts);
Rivanna, 840 F.2d at 241 (applying Williamson but holding presumption that
general partnership is not a security was not rebutted).

                                         -20-
third prong of the Howey test. The district court granted the motion to dismiss

because facially the JVAs granted investors control over their investments

through “substantial voting rights.” The court noted that investors could remove

GeoDynamics as Managing Venturer without cause by majority vote, develop

rules and procedures for meetings, and exercise all the rights and obligations

afforded to them under Texas General Partnership laws. Aplt. App. at 176 & n.5.

      Investments satisfy the third prong of the Howey test “when the efforts

made by those other than the investor are the ones which affect significantly the

success or failure of the enterprise.” Banghart, 902 F.2d at 807 (citing Meyer v.

Dans un Jardin, 816 F.2d 533, 535 (10th Cir. 1987)); see also Crowley v.

Montgomery Ward & Co., 570 F.2d 875, 877 (10th Cir. 1975) (Crowley I) (“[T]he

test is ‘whether the 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.’” (quoting SEC v. Glenn W. Turner Enters.,

Inc., 474 F.2d 476, 482 (9th Cir. 1973))). The proper inquiry includes “an

examination of the investor’s powers under the terms of the agreement, the

information available to and the sophistication of the investor, adequacy of

financing, degree of speculation, whether or not the risks involved were normal

business risks, and so on.” Maritan, 875 F.2d at 1457. “The contribution of time

and effort is only part of the test,” and “[c]onsideration must be given to control

over the factors essential to success of the enterprise.” Crowley II, 570 F.2d at

                                         -21-
880. Furthermore, because the “principal purpose of the securities acts is to

protect investors by promoting full disclosure of information necessary to

informed investment decisions,” we have recognized that “access to information

about the investment, and not managerial control, is the most significant factor,”

in determining whether “investors are in need of the protections of the securities

acts.” Maritan, 875 F.2d at 1457 (citation omitted). “In short, each case must be

analyzed on its own facts . . . .” Id.

       Applying these principles, we agree with the SEC that the allegations in the

complaint are clearly sufficient to rebut the presumption that the purported

general partnerships here are not securities, and to raise a fact issue concerning

whether investors were relying on the efforts of Mr. Shields and GeoDynamics to

significantly affect the success or failure of the ventures. The allegations also

raise a fact issue as to whether the investors actually had the type of control

reserved under the agreements to obtain access to information necessary to

protect, manage, and control their investments at the time they purchased their

interests.

       The Williamson factors provide support for this conclusion. First, a general

partnership or joint venture may be a security if “an agreement among the parties

leaves so little power in the hands of the partner or venturer that the arrangement

in fact distributes power as would a limited partnership.” Williamson, 645 F.2d at

424. As the court explained in Merchant Capital, we look at “the expectations of

                                         -22-
control at the time the interest is sold, rather than at some later time after the

expectations of control have developed or evolved,” 483 F.3d at 756, but “[a]s an

evidentiary matter, . . . we may look at how the [general partnership] actually

operated to answer the question of how control was allocated at the outset,” id.

The court noted further:

      Williamson also defines the kind of evidence that is to be considered
      in determining the expectations of control. Consistent with Howey’s
      focus on substance over form, we look at all the representations made
      by the promoter in marketing the interests, not just at the legal
      agreements underlying the sale of the interest. SEC v. C.M. Joiner
      Leasing Corp., 320 U.S. 344, 353, 64 S.Ct. 120, 124, 88 L.Ed. 88
      (1943) (“In the enforcement of an act such as this it is not
      inappropriate that promoters’ offerings be judged as being what they
      were represented to be.”); Gordon, 684 F.2d at 742 (“Williamson
      requires an examination of the representations and promises made by
      promoters . . . to induce reliance upon their entrepreneurial
      abilities.”); Koch v. Hankins, 928 F.2d 1471, 1478 (9th Cir.1991).
      The ultimate issue under Howey is whether the partners expected to
      rely solely on the efforts of others, and we may rely on the totality of
      the circumstances surrounding the offering in making this
      determination.

Id. at 756-57.

      Moreover, in Maritan we made it clear that post-investment conduct is

relevant to the intent of the parties at the time the agreement was signed, 875 F.2d

at 1458-59, which Mr. Shields does not dispute. There, Maritan argued his

activities were insignificant when compared to others and were “irrelevant

because most of them took place two years after the agreement was signed.” Id.

We disagreed, reasoning that “the fact and nature of Maritan’s later participation


                                          -23-
sheds light on how the parties regarded Maritan’s rights and status under the

agreement all along . . . .” Id. at 1459 (emphasis added). We further agreed with

the district court’s statement that “[i]ntent becomes clear from the relationship

which the parties accepted thereafter.” Id. (citation omitted). We concluded that

“[w]hen this transaction is correctly analyzed by focusing on Maritan’s access to

information, then on the agreement and Maritan’s express and implied rights and

powers under the agreement, all as confirmed by his subsequent actions, we are

satisfied that no genuine issue of material fact remains for trial.” Id.

      The SEC contends its allegations support the conclusion that the venturers

here lacked the type of control usually afforded to general partners and that they

instead had the more restricted rights of a limited partner. Thus, while the JVAs

did grant investors certain voting rights, including the right to remove

GeoDynamics as a managing partner, the allegations in the complaint show that

investors were locked into turnkey drilling and completion contracts with

GeoDynamics as the contractor. Accordingly, even if they exercised their power

to remove GeoDynamics as managing venturer, they were still required to rely on

GeoDynamics for the success of the joint venture. The turnkey contracts were

key to the success of the enterprise and profits for the investors, regardless of the

venturers’ power, because they were the only way these oil and gas investments

could generate money. See Merch. Capital, 483 F.3d at 757-61 (analyzing

practical inability to remove managing partner notwithstanding contractual right

                                         -24-
to do so).

       Moreover, the allegations that Mr. Shields marketed these interests to

thousands of investors across the country with little or no experience in the oil

and gas industry, and that he was their sole source of access to information, raise

a fact issue concerning whether the voting rights were illusory or a sham. The

court in Merchant Capital found it relevant that, as in Howey, 328 U.S. at 299,

the investors in the partnership were “geographically dispersed, with no

preexisting relationships” and determined that “the lack of face-to-face contact

among the partners exacerbated the other difficulties and rendered the supposed

power to remove [the managing partner] illusory.” 483 F.3d at 758. The court

explained further that votes are illusory when the promoter controls how much

information the investors get “and [does] not submit sufficient information for the

partners to be able to make meaningful decisions.” Id.

       The allegations here are sufficient to defeat a motion to dismiss on the

issue of whether the investors here lacked meaningful control over their interests.

See id. at 757-62 (analyzing how powers reserved in general partnership

agreement were in reality illusory). They raise a plausible claim that the joint

venture agreements, in substance as opposed to form, actually distributed powers

similar to a limited partnership, which is usually held to be a security. See SEC v.

Murphy, 626 F.2d 633, 640 (9th Cir. 1980) (“[A] limited partnership generally is

a security. . . .”).

                                         -25-
      Second, we consider whether “the partner or venturer is so inexperienced

and unknowledgeable in business affairs that he is incapable of intelligently

exercising his partnership or venture powers.” Williamson, 645 F.2d at 424. The

allegations that Mr. Shields marketed these oil and gas interests nationwide to

investors with little, if any, experience in the oil and gas industry by means of

over 400 cold calls a day clearly supports this conclusion. As the court held in

Williamson, an investment “scheme which sells investments to inexperienced and

unknowledgeable members of the general public cannot escape the reach of the

securities laws merely by labeling itself a general partnership or joint venture.”

Id. at 423. The experience and knowledge referred to in Williamson “focus[es] on

the experience of investors in the particular business, not the general business

experience of the partners.” Merch. Capital, 483 F.3d at 762 (citing Howey, 328

U.S. at 296). This is so because “[r]egardless of investors’ general business

expertise, where they are inexperienced in a particular business, they are likely to

be relying solely on the efforts of the promoters to obtain their profits.” Id.; see

also Leonard, 529 F.3d at 90-91 (“We echo the Fifth Circuit in finding that

investors may be so lacking in requisite expertise, so numerous, or so dispersed,

that they become utterly dependant on centralized management counteracting a

legal right of control.” (citing Williamson, 645 F.2d at 423-24)).

      Third, we ask whether “the partner or venturer is so dependent on some

unique entrepreneurial or managerial ability of the promoter or manager that he

                                         -26-
cannot replace the manager of the enterprise or otherwise exercise meaningful

partnership or venture powers.” Williamson, 645 F.2d at 424. As we noted

earlier, the SEC alleges that Mr. Shields specifically emphasized the unique

expertise of GeoDynamics in the oil and gas industry during his sales pitches, so

unique that he was able to offer—and investors depended on him for—estimated

annualized profits between 256% and 548%. Moreover, the investors had no

experience in the oil and gas business and were totally reliant on GeoDynamics

and the turnkey drilling contracts for a profitable investment. These allegations

raise a fact issue as to whether the investors had any practical alternative to

GeoDynamics.

      The district court focused only on the form of the JVAs themselves without

considering the economic realities of the transactions and the investors’ lack of

access to information needed in order to actually use the powers reserved to them

under the JVAs. When the allegations here are instead viewed in their totality,

they state a plausible claim that the powers were illusory, which is sufficient to

rebut the presumption that a general partnership is not a security.

      In sum, it cannot be said as a matter of law that what was sold to the

investors in this case are not investment contracts and therefore securities.

Accordingly, we REVERSE the district court and REMAND for further

proceedings consistent with this opinion.




                                         -27-
