United Housing Foundation, Inc., v. Forman

421 U.S. 837, 1975


  • United Housing gave D the right to lease a room in a coop.
  • They are entitled to buy shares which give them the right to rent a specific room.
  • “In effect, their purchase is a recoverable deposit on an apartment.”
  • A tenant who wants to leave must offer his stock at its initial selling price of $25 per share.
  • Each tenant had the right to one vote regarding the affairs of the apartment complex, regardless of the number of shares held.
  • When United Housing Foundation attempted to raise rents in Co-Op City, the tenants (Forman) (plaintiffs) brought suit against United Housing Foundation, alleging that Forman was misled in purchasing shares of the co-op, in violation of Securities Act of 1933.


  • “Whether shares of stock entitling a purchaser to lease an apartment in Co-op City… are ‘securities’ within the purview of the Securities Act of 1933.”

Applicable Rule of Law:

  • Howey Court said: a stock should be “induced by an offer of tangible material profits” that were to “be realistically expected.”


  • NO, reversed.


  • The renters are not necessarily “investors” and were not misled into thinking that what they were purchasing was stock.
  • The traditional features of a stock were missing: 1. Nothing about the purchase indicated to shareholders that they’d receive dividends or profits. 2. The instrument was not negotiable in terms of price or other features. 3. It couldn’t be “pledged or hypothecated” or used as collateral. 4. There were no voting rights in the proportion to the shares that were owned. 5. The stocks couldn’t appreciate in value.
  • Generally, the court said the transaction was motivated by finding a place to live and not by making an investment.

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