‘‘Opportunity doesn’t always knock * * * sometimes it rings.’’ [Citation.] And sometimes it hangs up. So it did for the 10,000 people who invested a total of $300 million in the payphone sale-and-leaseback arrangements touted by respondent under that slogan. The Securities and Exchange Commission (SEC) argues that the arrangements were investment contracts, and thus were subject to regulation under the federal securities laws. In this case, we must decide whether a moneymaking scheme is excluded from the term ‘‘investment contract’’ simply because the scheme offered a contractual entitlement to a fixed, rather than a variable, return. 

I 

Respondent Charles Edwards was the chairman, chief executive officer, and sole shareholder of ETS Payphones, Inc. (ETS). ETS, acting partly through a subsidiary also controlled by respondent, sold payphones to the public via independent distributors. The payphones were offered packaged with a site lease, a 5-year leaseback and management agreement, and a buyback agreement. All but a tiny fraction of purchasers chose this package, although other management options were offered. The purchase price for the payphone packages was approximately $7,000. Under the leaseback and management agreement, purchasers received $82 per month, a 14% annual return. Purchasers were not involved in the day-to-day operation of the payphones they owned. ETS selected the site for the phone, installed the equipment, arranged for connection and long-distance service, collected coin revenues, and maintained and repaired the phones. Under the buyback agreement, ETS promised to refund the full purchase price of the package at the end of the lease or within 180 days of a purchaser’s request.

   In its marketing materials and on its website, ETS trumpeted the ‘‘incomparable pay phone’’ as ‘‘an exciting business opportunity,’’ in which recent deregulation had ‘‘open[ed] the door for profits for individual pay phone owners and operators.’’ According to ETS, ‘‘[v]ery few business opportunities can offer the potential for ongoing revenue generation that is available in today’s pay telephone industry.’’ [Citation.]

   The payphones did not generate enough revenue for ETS to make the payments required by the leaseback agreements, so the company depended on funds from new investors to meet its obligations. In September 2000, ETS filed for bankruptcy protection. The SEC brought this civil enforcement action the same month. It alleged that respondent and ETS had violated the registration requirements of §§5(a) and (c) of the Securities Act of 1933, [citation], the antifraud provisions of both §17(a) of the Securities Act of 1933, [citation], and §10(b) of the Securities Exchange Act of 1934, [citation], and Rule 10b–5 thereunder, [citation]. The District Court concluded that the payphone sale-and-leaseback arrangement was an investment contract within the meaning of, and therefore was subject to, the federal securities laws. [Citation.] The Court of Appeals reversed. [Citation.] It held that respondent’s scheme was not an investment contract, on two grounds. First, it read this Court’s opinions to require that an investment contract offer either capital appreciation or a participation in the earnings of the enterprise, and thus to exclude schemes, such as respondent’s, offering a fixed rate of return. [Citation.] Second, it held that our opinions’ requirement that the return on the investment be ‘‘derived solely from the efforts of others’’ was not satisfied when the purchasers had a contractual entitlement to the return. [Citation.] We conclude that it erred on both grounds.

II

   ‘‘Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called.’’ [Citation.] To that end, it enacted a broad definition of ‘‘security,’’ sufficient ‘‘to encompass virtually any instrument that might be sold as an investment.’’ [Citation.] * * * [The 1993 Act and the 1934 Act] define ‘‘security’’ to include ‘‘any note, stock, treasury stock, security future, bond, debenture, * * * investment contract, * * * [or any] instrument commonly known as a ‘security’.’’ ‘‘Investment contract’’ is not itself defined.

   The test for whether a particular scheme is an investment contract was established in our decision in SEC v. W. J. Howey Co., [citation]. We look to ‘‘whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others.’’ [Citation.] This definition ‘‘embodies 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.’’ [Citation.]

   * * * Thus, when we held that ‘‘profits’’ must ‘‘come solely from the efforts of others,’’ we were speaking of the profits that investors seek on their investment, not the profits of the scheme in which they invest. We used ‘‘profits’’ in the sense of income or return, to include, for example, dividends, other periodic payments, or the increased value of the investment.

   There is no reason to distinguish between promises of fixed returns and promises of variable returns for purposes of the test, so understood. In both cases, the investing public is attracted by representations of investment income, as purchasers were in this case by ETS’ invitation to ‘‘‘watch the profits add up.’’’ [Citation.] Moreover, investments pitched as low-risk (such as those offering a ‘‘guaranteed’’ fixed return) are particularly attractive to individuals more vulnerable to investment fraud, including older and less sophisticated investors. [Citation.] Under the reading respondent advances, unscrupulous marketers of investments could evade the securities laws by picking a rate of return to promise. We will not read into the securities laws a limitation not compelled by the language that would so undermine the laws’ purposes.

   Respondent protests that including investment schemes promising a fixed return among investment contracts conflicts with our precedent. We disagree. * * *

***

   Given that respondent’s position is supported neither by the purposes of the securities laws nor by our precedents, it is no surprise that the SEC has consistently taken the opposite position, and maintained that a promise of a fixed return does not preclude a scheme from being an investment contract. * * *

   The Eleventh Circuit’s perfunctory alternative holding, that respondent’s scheme falls outside the definition because purchasers had a contractual entitlement to a return, is incorrect and inconsistent with our precedent. We are considering investment contracts. The fact that investors have bargained for a return on their investment does not mean that the return is not also expected to come solely from the efforts of others. * * *

   We hold that an investment scheme promising a fixed rate of return can be an ‘‘investment contract’’ and thus a ‘‘security’’ subject to the federal securities laws. The judgment of the United States Court of Appeals for the Eleventh Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion.

   It is so ordered.