SG ran "StockGeneration," a Web site offering the chance to buy shares in "virtual companies" listed on SGs "virtual stock exchange." SG arbitrarily set the buy and sell prices of each stock in the imaginary companies and allowed investors to buy and sell any quantity at posted prices. Millions of dollars had been collected by SG, and participants had trouble redeeming their shares. SG suspended operations and the SEC sued, contending that the sale of shares in a company that was claimed to be a "game without any risk" that had an average increase in value of 10 percent per month was, in fact, a sale of an unregistered security in violation of the Securities Exchange Act. The district court dismissed the complaint, holding that the shares were clearly marked and defined as a game lacking a business context. The SEC appealed.
Were these unregistered securities? [SEC v. SG Ltd., 265 F.3d 42, 1st Cir. (2001)]