PUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT


JAMES G. ROBINSON,                     
                Plaintiff-Appellant,
                 v.
THOMAS W. GLYNN,
             Defendant-Appellee,                  No. 03-1106
                and
GLYNN SCIENTIFIC, INCORPORATED;
GEOPHONE COMPANY, LLC,
                        Defendants.
                                       
           Appeal from the United States District Court
            for the District of Maryland, at Baltimore.
                 J. Frederick Motz, District Judge.
              (CA-98-4168-JFM, CA-99-1956-JFM)

                      Argued: September 24, 2003

                      Decided: November 13, 2003

    Before WILKINSON and GREGORY, Circuit Judges, and
              HAMILTON, Senior Circuit Judge.



Affirmed by published opinion. Judge Wilkinson wrote the opinion,
in which Judge Gregory and Senior Judge Hamilton joined.


                             COUNSEL

ARGUED: Richard Louis Brusca, SKADDEN, ARPS, SLATE,
MEAGHER & FLOM, L.L.P., Washington, D.C., for Appellant. Tim-
2                         ROBINSON v. GLYNN
othy Cronin Lynch, SHAR, ROSEN & WARSHAW, L.L.C., Balti-
more, Maryland, for Appellee. ON BRIEF: Marc Selden Rosen,
SHAR, ROSEN & WARSHAW, L.L.C., Baltimore, Maryland, for
Appellee.


                              OPINION

WILKINSON, Circuit Judge:

   Plaintiff James Robinson filed suit against Thomas Glynn, Glynn
Scientific, Inc., and GeoPhone Company, LLC, alleging that Glynn
committed federal securities fraud when he sold Robinson a partial
interest in Geophone Company. The district court found that Robin-
son’s membership interest in GeoPhone was not a security within the
meaning of the federal securities laws, and it dismissed Robinson’s
securities fraud claim. Because Robinson was an active and knowl-
edgeable executive at GeoPhone, rather than a mere passive investor
in the company, we affirm. To do otherwise would unjustifiably
expand the scope of the federal securities laws by treating an ordinary
commercial venture as an investment contract.

                                   I.

   Robinson appeals from a grant of summary judgment to Glynn, and
accordingly we take the facts in the light most favorable to Robinson.
See, e.g., McLean v. Patten Communities, Inc., 

, 719 (4th
Cir. 2003). In 1995, Glynn organized GeoPhone Corporation to
develop and commercially market the GeoPhone telecommunications
system. The GeoPhone system was designed around a signal process-
ing technology, Convolutional Ambiguity Multiple Access (CAMA),
that Glynn purportedly designed. Glynn was GeoPhone Corporation’s
majority shareholder and chairman. In September 1995, GeoPhone
Corporation became a limited liability company, GeoPhone Com-
pany, LLC. LLCs are noncorporate business entities that offer their
members limited liability, tax benefits, and organizational flexibility.

  In March 1995, Glynn and his associates contacted James Robin-
son, a businessman with no prior telecommunications experience, in
                          ROBINSON v. GLYNN                            3
an effort to raise capital for GeoPhone. Over the next several months,
Glynn met and corresponded with Robinson, attempting to convince
Robinson to invest in GeoPhone. Glynn described to Robinson the
CAMA technology, its centrality to the GeoPhone system, and Geo-
Phone’s business plan. In July 1995, Robinson agreed to loan Glynn
$1 million so that Glynn could perform a field test of the GeoPhone
system and the CAMA technology.

   In addition to Robinson’s loan, in August 1995 Robinson and
Glynn executed a "Letter of Intent," in which Robinson pledged to
invest up to $25 million in GeoPhone, LLC if the field test indicated
that CAMA worked in the GeoPhone system. Robinson’s $25 million
investment was to be comprised of his initial $1 million loan, an
immediate $14 million investment upon successful completion of the
field test, and a later $10 million investment. In October 1995, engi-
neers hired by Glynn performed the field test, but, apparently with
Glynn’s knowledge, they did not use CAMA in the test. Nevertheless,
Glynn allegedly told Robinson that the field test had been a success.

   Consistent with the Letter of Intent, in December 1995 Robinson
and Glynn executed an "Agreement to Purchase Membership Interests
in GeoPhone" (APMIG). Under the APMIG, Robinson agreed to con-
vert his $1 million loan and his $14 million investment into equity
and subsequently to invest the additional $10 million. Robinson and
Glynn also entered into an "Amended and Restated GeoPhone Oper-
ating Agreement" (ARGOA), which detailed the capital contribution,
share ownership, and management structure of GeoPhone.

   Pursuant to the ARGOA, Robinson received 33,333 of GeoPhone’s
133,333 shares. On the back of the share certificates that Robinson
received, the restrictive legend referred to the certificates as "shares"
and "securities." It also specified that the certificates were exempt
from registration under the Securities Act of 1933, and stated that the
certificates could not be transferred without proper registration under
the federal and state securities laws.

  In addition, the ARGOA established a seven-person board of man-
agers that was authorized to manage GeoPhone’s affairs. Two of the
managers were to be appointed by Robinson with the remaining five
appointed by Glynn and his brother. Finally, the ARGOA vested man-
4                          ROBINSON v. GLYNN
agement of GeoPhone in Robinson and Glynn based on each mem-
ber’s ownership share. Robinson was named GeoPhone’s treasurer,
and he was appointed to the board of managers and the company’s
executive committee. Glynn served as GeoPhone’s chairman and was
intimately involved in the company’s operations and technical devel-
opment.

   Trouble first surfaced only a few months later in April 1996, when
Robinson sued Glynn in Maryland state court. Robinson alleged
breach of fiduciary duty, fraud, and conversion, all due to Glynn’s
purported mismanagement of GeoPhone funds. In October 1997,
Robinson and Glynn settled the state court action, and as part of the
settlement in November 1997 they entered into a "Membership Inter-
est Purchase Agreement" (MIPA). Under the MIPA, Robinson pur-
chased all of Glynn’s shares in GeoPhone.

   Yet in 1998 Robinson allegedly learned for the first time that the
CAMA technology had never been implemented in the GeoPhone
system — not even in the field test that had provided the basis for
Robinson’s investment. Robinson then filed suit in federal court,
claiming violation of the federal securities laws, specifically § 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5. The district
court, however, granted summary judgment to Glynn, because it
found that Robinson’s membership interest in GeoPhone, LLC did not
constitute a security under the federal securities laws. Robinson now
challenges the district court’s dismissal of his federal securities law
claim.1

                                    II.

  In order to establish a claim under Rule 10b-5, Robinson must
prove fraud in connection with the purchase of securities. See 17
C.F.R. § 240.10b-5; Gasner v. Board of Supervisors of the County of
Dinwiddie, 

, 356 (4th Cir. 1996). The Securities Act of
    1
   In addition to his federal securities law claim, Robinson also brought
several state law claims. Once the district court had dismissed Robin-
son’s federal claim, it declined to exercise supplemental jurisdiction over
his remaining state law claims. Robinson does not challenge this aspect
of the district court’s decision.
                          ROBINSON v. GLYNN                            5
1933, 15 U.S.C. § 77b(a)(1), and the Securities Exchange Act of
1934, 15 U.S.C. § 78c(a)(10), define a "security" broadly as "any
note, stock, treasury stock, security future, bond, debenture, . . . ,
investment contract, . . . , or, in general, any interest or instrument
commonly known as a ‘security.’"2 In this case, Robinson claims that
his membership interest in GeoPhone, a limited liability company
(LLC), qualifies as either an "investment contract" or "stock" under
the Securities Acts.

                                   A.

   The district court determined that Robinson’s interest in GeoPhone
was not an investment contract, a question of law that we review de
novo. The Supreme Court has defined an investment contract as "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." S.E.C. v. W.J. Howey, Co.,

, 298-99 (1946). The parties agree that Robinson
invested his money in a common enterprise with an expectation of
profits. Their disagreement concerns whether Robinson expected
profits "solely from the efforts" of others, most notably Glynn.

   Since Howey, however, the Supreme Court has endorsed relaxation
of the requirement that an investor rely only on others’ efforts, by
omitting the word "solely" from its restatements of the Howey test.
See Int’l Bhd. of Teamsters v. Daniel, 

, 561 (1979) (quot-
ing United Housing Foundation, Inc. v. Forman, 

, 852
(1975)). And neither our court nor our sister circuits have required
that an investor like Robinson expect profits "solely" from the efforts
of others. See Rivanna Trawlers Unlimited v. Thompson Trawlers,
Inc., 

, 240 n.4 (4th Cir. 1988) (citing cases). Requiring
investors to rely wholly on the efforts of others would exclude from
the protection of the securities laws any agreement that involved even
slight efforts from investors themselves. See Bailey v. J.W.K. Proper-
ties, Inc., 

, 920 (4th Cir. 1990). It would also exclude
  2
    The Securities Acts’ definitions of "security" differ in wording only
slightly and are generally treated as identical in meaning. See Teague v.
Bakker, 

, 986 n.6 (4th Cir. 1994) (citing Landreth Timber Co.
v. Landreth, 

, 686 n.1 (1985)).
6                        ROBINSON v. GLYNN
any agreement that offered investors control in theory, but denied it
to them in fact. Agreements do not annul the securities laws by retain-
ing nominal powers for investors unable to exercise them. See 

n.6; see also Long v. Shultz Cattle Co., Inc., 

, 133
(5th Cir. 1989).

   What matters more than the form of an investment scheme is the
"economic reality" that it represents. See 

n.4. The question is whether an investor, as a result of the investment
agreement itself or the factual circumstances that surround it, is left
unable to exercise meaningful control over his investment. See 

see also Williamson v. Tucker, 

, 424 (5th Cir.
1981). Elevating substance over form in this way ensures that the
term "investment contract" 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." 

.

                                  B.

   In looking at the powers accorded Robinson under GeoPhone’s
operating agreement, as well as Robinson’s activity as an executive
at GeoPhone, it is clear that Robinson was no passive investor heavily
dependent on the efforts of others like Glynn. Under the ARGOA,
management authority for GeoPhone resided in a board of managers.
Robinson not only had the power to appoint two of the board mem-
bers, but he himself assumed one of the board seats and was named
as the board’s vice-chairman. The board, in turn, delegated extensive
responsibility to a four-person executive committee of which Robin-
son was also a member.

   In addition, Robinson served as GeoPhone’s Treasurer. Among his
powers were the ability to select external financial and legal consul-
tants; to consult with GeoPhone’s Chief Financial Officer on all
financial matters relating to the company; to review status reports
from the President and other officers; and to assemble the executive
committee in order to discuss variations from GeoPhone’s operating
plan. Beyond even these fairly extensive powers, the ARGOA for-
bade GeoPhone from either incurring any indebtedness outside the
normal course of business without Robinson’s approval or diluting his
                         ROBINSON v. GLYNN                           7
interest in GeoPhone without first consulting him. In short, Robinson
carefully negotiated for a level of control "antithetical to the notion
of member passivity" required to find an investment contract under
the federal securities laws. Keith v. Black Diamond Advisors, Inc., 

, 333 (S.D.N.Y. 1999).

   None of this, of course, establishes that Robinson could entirely
direct the affairs of GeoPhone. He controlled neither the board nor the
executive committee, and he lacked the technological expertise of
Glynn and others at the company. But Robinson was not interested in
sole managerial control of GeoPhone; he was interested instead in
sufficient managerial control to ensure that other managers like Glynn
could neither harm nor dilute his investment. Through his positions
as Treasurer, Vice-Chairman of the Board, and member of Geo-
Phone’s executive committee, Robinson may have lacked "decisive
control over major decisions," but he preserved "the sort of influence
which generally provide[d] [him] with access to important informa-
tion and protection against a dependence on others." 

(internal quotation omitted).

   Robinson argues, however, that his lack of technological expertise
relative to Glynn prevented him from meaningfully exercising his
rights. We faced essentially the same legal argument in Rivanna, and
found that it assumed too much. See 

n.10. To the extent that
Robinson needed assistance in understanding any particular aspect of
the CAMA technology, nothing prevented him from seeking it from
outside parties or others at GeoPhone. See id.; Banghart v. Hollywood
Gen. P’ship, 

, 808 n.5 (10th Cir. 1990). In fact, prior to
purchasing all of Glynn’s shares in GeoPhone, Robinson asked his
accountant to scrutinize the company’s financial records, and he hired
an outside engineer to study the company’s technology and market
potential.

   Indeed, the record amply supports the district court’s conclusion
that Robinson exercised his management rights despite his lack of
technical expertise. For instance, Robinson reviewed GeoPhone’s
technology and financial records, as well as weekly status reports
from GeoPhone’s President, Chief Operating Officer, and Chief
Financial Officer covering numerous aspects of GeoPhone’s opera-
tion. He disapproved disbursements and proposed licenses of the Geo-
8                         ROBINSON v. GLYNN
Phone technology. Robinson even expressed to the board of managers
problems he perceived with GeoPhone, including the company’s tech-
nological development, its management, and marketability. In the
end, Robinson generally asserts that he lacked technical sophistica-
tion, without explaining in any detail what was beyond his ken or why
it left him powerless to exercise his management rights.

   Moreover, Robinson’s argument would work a fundamental and
unjustifiable expansion in the securities laws by bringing innumerable
commercial ventures within their purview. Business ventures often
find their genesis in the different contributions of diverse individuals
— for instance, as here, where one contributes his technical expertise
and another his capital and business acumen. Yet the securities laws
do not extend to every person who lacks the specialized knowledge
of his partners or colleagues, without a showing that this lack of
knowledge prevents him from meaningfully controlling his invest-
ment. Here, Robinson concedes that "nothing of consequence that
would affect [his] position adversely could be done without [his] prior
expressed approval," thus undermining his claim that his lack of tech-
nical expertise left him powerless over his investment. In essence,
Robinson was a savvy and experienced businessman who negotiated
for formal management rights and actively exercised those rights,
only now relying on his lack of technical sophistication to claim the
cover of the federal securities laws.

   Robinson’s opportunity, especially as an executive at GeoPhone, to
oversee his interests distinguishes his case from Bailey v. J.W.K.
Properties, Inc., 

(4th Cir. 1990). In Bailey, we found
that a cattle breeding program was an investment contract, in part
because the investors lacked specialized expertise in crossbreeding
and cattle breeding selection. See 

& n.13. Yet the Bailey
investors’ lack of specialized knowledge alone did not convert their
interest into a security — again, such a result would bring a host of
commercial enterprises within the ambit of the securities laws.
Rather, the Bailey investors lacked the indicia of control — formal
and actual — that mark active investors like Robinson. See 

24. And unlike the present case, the Bailey investors ran headlong
into a coordination problem that heightened their dependence on the
breeders: no single investor owned enough cattle to run a breeding
program, and so they relied on the breeders to pool their herds and
                            ROBINSON v. GLYNN                              9
coordinate the process. See 

; see also 

. Robinson was GeoPhone’s only major investor, and he was
not dependent on the investments or expertise of others.

   Finally, Robinson argues that he and Glynn considered his interest
in GeoPhone a security, based on language in the APMIG, in the
ARGOA, and on the back of Robinson’s GeoPhone certificates. For
instance, the restrictive legend on the back of Robinson’s certificates
refers to the certificates as "shares" and "securities." While this may
be persuasive evidence that Robinson and Glynn believed the securi-
ties laws to apply, it does not indicate that their understanding was
well-founded. Just as agreements cannot evade the securities laws by
reserving powers to members unable to exercise them, neither can
agreements invoke those same laws simply by labelling commercial
ventures as securities. It is the "economic reality" of a particular
instrument, rather than the label attached to it, that ultimately deter-
mines whether it falls within the reach of the securities laws. See
Great Rivers Coop. v. Farmland Indus., Inc., 

, 701 (8th
Cir. 1999). The "economic reality" here is that Robinson was not a
passive investor relying on the efforts of others, but a knowledgeable
executive actively protecting his interest and position in the company.

                                    III.

   Robinson further claims that his membership interest in GeoPhone
was not only an "investment contract" within the meaning of the fed-
eral securities laws, but "stock" as well.3 Congress intended catch-all
terms like "investment contract" to encompass the range of novel and
unusual instruments whose economic realities invite application of the
securities laws; but the term "stock" refers to a narrower set of instru-
ments with a common name and characteristics. See Landreth Timber
Co. v. Landreth, 

, 686 (1985). Thus the securities laws
apply "when an instrument is both called ‘stock’ and bears stock’s
usual characteristics." 

membership interest was
  3
    The Securities Acts define a "security" as "any note, stock, treasury
stock, security future, bond, debenture, . . . , investment contract, . . . ,
or, in general, any interest or instrument commonly known as a ‘secur-
ity.’" 15 U.S.C. §§ 77b(a)(1) & 78c(a)(10).
10                        ROBINSON v. GLYNN
neither denominated stock by the parties, nor did it possess all the
usual characteristics of stock.

   The characteristics typically associated with common stock are (i)
the right to receive dividends contingent upon an apportionment of
profits; (ii) negotiability; (iii) the ability to be pledged or hypothe-
cated; (iv) the conferring of voting rights in proportion to the number
of shares owned; and (v) the capacity to appreciate in value. See 

interest in GeoPhone lacked several of these
characteristics. Consider Great Lakes Chemical Corp. v. Monsanto
Co., 

, 387-89 (D. Del. 2000) (finding that LLC
membership interests do not constitute stock under Landreth).

   First, as is common with interests in LLCs, GeoPhone’s members
did not share in the profits in proportion to the number of their shares.
See Larry E. Ribstein, Form and Substance in the Definition of a "Se-
curity": The Case of Limited Liability Companies, 51 Wash. & Lee
L. Rev. 807, 833 (1994) (noting that "LLC statutes usually do not pro-
vide for dividend rights"). Pursuant to the ARGOA, Robinson was to
receive 100 percent of GeoPhone’s net profits up to a certain amount,
only after which were funds to be distributed pro rata to the members
in proportion to their relative shares.

   Second, like interests in LLCs more generally, Robinson’s mem-
bership interests were not freely negotiable. See 

LLC statutes "invariably restrict transferability of management
rights"). According to the ARGOA, Robinson could only transfer his
interests if he first offered other members the opportunity to purchase
his interests on similar terms. Moreover, unlike with stock (except
some stock in close corporations), anyone to whom Robinson or other
members transferred their interests would not have thereby acquired
any of the control or management rights that normally attend a stock
transfer. See Carol R. Goforth, Why Limited Liability Company Mem-
bership Interests Should Not Be Treated as Securities and Possible
Steps to Encourage This Result, 45 Hastings L.J. 1223, 1247 (1994)
(discussing ability of corporate stockholders, unlike owners of LLC
interests, to convey all attributes of ownership without additional
third-party consent). Rather, the ARGOA requires that transferees sat-
isfy several conditions to become members, in addition to receiving
the approval of a majority of GeoPhone’s managers.
                          ROBINSON v. GLYNN                          11
   Similarly, Robinson could pledge his interest, but the pledgee
would acquire only distribution rights and not control rights. See 

however, the pledgee [of a LLC membership interest]
acquires no rights to become a substitute owner with rights to partici-
pate in control of the entity upon default of the pledgor."). As for the
apportionment of voting rights, the parties dispute whether voting
rights were conferred in proportion to members’ interests in Geo-
Phone. Even resolving this dispute in Robinson’s favor, it remains
clear that Robinson’s membership interest lacked the ordinary attri-
butes of stock.

   Finally, from the very beginning Robinson and Glynn consistently
viewed Robinson’s investment as a "membership interest," and never
as "stock." The purchase and operating agreements that Robinson and
Glynn executed, as well as the agreement in which Robinson bought
out Glynn’s interest in GeoPhone, all termed Robinson’s investment
as a "membership interest" rather than "stock." Even the shares that
Robinson received as a result of his investments declared Robinson
the holder of "membership interests in GeoPhone Company, L.L.C.,
within the meaning of the Delaware Limited Liability Company Act."
Robinson thus cannot argue that he was misled into believing that his
membership interests were stock whose purchases were governed by
the securities laws. See 

, 693 (finding that
calling instruments "stock" justifiably leads purchasers to believe that
the federal securities laws apply). And it would do violence to the
statutory language of the securities laws to include within the term
"stock" an instrument that was neither labelled stock nor like stock.

                                  IV.

   The parties have vigorously urged us to rule broadly in this case,
asking that we generally classify interests in limited liability compa-
nies, or LLCs, as investment contracts (Robinson’s view) or non-
securities (Glynn’s view). LLCs are particularly difficult to categorize
under the securities laws, however, because they are hybrid business
entities that combine features of corporations, general partnerships,
and limited partnerships. See, e.g., Great 

.
As their name indicates, LLCs can limit the liability of their members,
which may mean that LLC members are more likely to be passive
investors who need the protection of the securities laws. See, e.g.,
12                         ROBINSON v. GLYNN
Ak’s Daks Communications, Inc. v. Maryland Sec. Div., 

, 497-98 (Md. Ct. Spec. App. 2001). However, LLC members are
also able to actively participate in management without piercing the
veil of their liability, which would suggest that LLC members are
more likely than limited partners or corporate shareholders to be
active investors not in need of the securities statutes. See, e.g., Great

.

   Precisely because LLCs lack standardized membership rights or
organizational structures, they can assume an almost unlimited variety
of forms. It becomes, then, exceedingly difficult to declare that LLCs,
whatever their form, either possess or lack the economic characteris-
tics associated with investment contracts. Even drawing firm lines
between member-managed and manager-managed LLCs threatens
impermissibly to elevate form over substance. Certainly the members
in a member-managed LLC will often have powers too significant to
be considered passive investors under the securities laws. And yet
even members in a member-managed LLC may be unable as a practi-
cal matter to exercise any meaningful control, perhaps because they
are too numerous, inexperienced, or geographically disparate. See,
e.g., Nutek Info. Sys., Inc. v. Arizona Corp. Comm’n, 

,
831-32 (Ariz. Ct. App. 1998); S.E.C. v. Parkersburg Wireless Ltd.
Liability Co., 

, 9 n.3 (D.D.C. 1997). By the same token,
while interests in manager-managed LLCs may often be securities,
their members need not necessarily be reliant on the efforts on their
managers. See, e.g., Great 

.

   We decline, therefore, the parties’ invitation for a broader holding.
On the facts of this case, it is clear that Robinson did not lack the abil-
ity to meaningfully exercise the rights granted him under GeoPhone’s
operating agreement.4 To the contrary, Robinson had a significant say
  4
   The weaknesses of Robinson’s case are highlighted by comparison to
S.E.C. v. ETS Payphones, Inc., 

(11th Cir. 2002), cert.
granted sub nom, S.E.C. v. Edwards, ___ U.S. ___, 

, 

, 

(Apr. 21, 2003) (No. 02-1196). ETS
Payphones involved the sale of pay telephones by a corporation, rather
than a limited liability company, to a class of over 10,000 investors. Hav-
ing purchased the phones, the investors then leased them back to the
company for management in exchange for a fixed monthly fee. See 

GLYNN                             13
in GeoPhone’s management. If Robinson, despite his own managerial
efforts, was misled by Glynn about his investment, his remedy
belongs to another forum. The federal securities laws were not
intended to be a substitute for state fraud and breach of contract actions.5
See 

; Marine Bank v. Weaver, 

,
556 (1982). We therefore affirm the district court’s dismissal of the
action in this case.

                                                              AFFIRMED

at 1282. While the investors retained limited contractual rights under the
lease, they were active in neither the company’s management nor opera-
tion. Their inexperience, geographical dispersion, and lack of access to
important information made the ETS Payphones investors practically
dependent on the efforts of others in a way that Robinson was not.
   5
     After the district court’s dismissal of Robinson’s suit, Robinson
refiled his suit in state court, where it remains pending. See Tape of Oral
Argument, Sept. 24, 2003 (Appellant’s Opening Argument).