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Poker Chips as Securities

by Professor Stefan Padfield on January 29, 2009

in Securities Regulation,Stefan Padfield

In the famous case of SEC v. W. J. Howey Co., the Supreme Court ruled that the sale of an orange grove tract plus a land management contract constituted an "investment contract" and was thus a security subject to federal regulation.

[A]n investment contract, for purposes of the Securities Act, means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party . . . .

This definition has the potential to encompass many creative money-raising ventures that have seemingly little if anything to do with the securities markets, including authors trying to fund their next book and ballplayers trying to hedge against the risk of not making the big leagues.  Perhaps we can add poker players to the list: ChipMeUp "is the leader in staking poker players in tournaments online and around the world."

What makes staking poker players (which is nothing new) a bit more interesting under the Howey test than staking authors or ballplayers is the question of whether you would be relying solely on the efforts of the poker player for your profit.  In other words, we quickly get into the age-old poker debate: Is poker predominantly a game of skill or luck?  Interestingly, two recent state court decisions have come out on the skill side (see here and here).

While you're mulling this question, here's a link to The Global Poker Strategic Thinking Society.  GPSTS was founded by Charles Nesson, The William F. Weld Professor of Law at Harvard Law School, and is currently advised by, among others, Lawrence Lessig, a Professor of Law at Stanford Law School, and Andrew Woods, a former teaching fellow of Economics at Harvard College.

The Global Poker Strategic Thinking Society views poker as an exceptional game of skill that can be used as a powerful teaching tool at all levels of academia and in secondary education. We use poker to teach strategic thinking, geopolitical analysis, risk assessment and money management. We see poker as a metaphor for skills of life, business, politics and international relations. Our goal is to create an open online curriculum centered on poker that will draw the brightest minds together, both from within and outside of the conventional university setting, to promote open education and Internet democracy.

As for me, I just hope all those who think poker is predominantly a game of luck will eventually sit down at my table.

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