The 2nd U.S. Circuit Court of Appeals insists that function matters over form in determining whether an arrangement amounts to an investment contract for purposes of federal securities laws.

In United States v. Leonard, 05-5523-cr, the circuit has said that what really matters in deciding whether two defendants could be held criminally liable for securities fraud is that the investors to whom the defendants marketed interests in two film companies were passive, rather than actively involved in the management of the companies.

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