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APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Joseph L. Tauro, U.S. District Judge]

These appeals – procedurally, there are two, but for all practical purposes they may be treated as one – 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, “SG” or “defendants”), 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 (“the SEC”), 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 defendants’ view and dismissed the SEC’s 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

 
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