Opinion for the Court filed by Circuit Judge GINSBURG.
Dissenting Opinion filed by Circuit Judge WALD.
GINSBURG, Circuit Judge:
A viatical settlement is an investment contract pursuant to which an investor acquires an interest in the life insurance policy of a terminally ill person — typically an AIDS victim — at a discount of 20 to 40 percent, depending upon the insured’s life expectancy. When the insured dies, the investor receives the benefit of the insurance. The investor’s profit is the difference between the discounted purchase price paid to the insured and the death benefit collected from the insurer, less transaction costs, premiums paid, and other administrative expenses.
Life Partners, Inc., under the direction of its former president and current chairman [538]*538Brian Pardo, arranges these transactions and performs certain post-transaction administrative services. The SEC contends that the fractional interests marketed by LPI are securities, and that LPI violated the Securities Act of 1933 and the Securities Exchange Act of 1934 by selling them without first complying with the registration and other requirements of those Acts. The district court agreed and preliminarily enjoined LPI from making further sales.
LPI argues that (1) viatical settlements are exempt from the securities laws because they are insurance contracts within the meaning of the McCarran-Ferguson Act, 15 U.S.C. § 1012(b), and § 3(a)(8) of the 1933 Act, 15 U.S.C. § 77c(a)(8), and (2) the fractional interests sold by LPI are not in any event securities within the meaning of the 1933 and 1934 Acts. LPI asserts alternatively that it could modify its program so as to come within a safe harbor exemption for private offerings under SEC Rule 506, 17 C.F.R. § 230.506.
We agree with the district court that viatical settlements are not exempt from the securities laws as insurance contracts. Contrary to the district court, however, we conclude that LPI’s contracts are not securities subject to the federal securities laws because the profits from their purchase do not derive predominantly from the efforts of a party or parties other than the investors; therefore, we do not reach LPI’s alternative argument that it might be able to alter its operation in such a way as to be entitled to a private offering exemption.
I. Background
LPI appeals four orders of the district court. First, in August 1995 the court held that LPI violated §§ 5(a) and (c) of the Securities Act, 15 U.S.C. § 77e(a) and (c), and § 15(a) of the Securities Exchange Act, 15 U.S.C. § 78o(a), by selling unregistered securities. The court ordered LPI to bring its operations into compliance with the Acts “forthwith,” but did not enjoin the company from continuing to sell viatical contracts. In the same order the court found that the SEC made out a prima facie case that LPI had materially misstated and omitted certain facts in selling securities, in violation of the anti-fraud provisions of § 10(b) of the 1934 Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, and preliminarily enjoined LPI from committing securities fraud.
Second, the following month the court denied LPI’s motion for a partial stay of the August order pending appeal. The district judge directed LPI to file within 20 days a report detailing the steps the company had undertaken to comply with the securities laws.
Third, in January 1996 the district court, holding that LPI had not adequately complied with its prior directives, preliminarily enjoined LPI from offering or selling unregistered fractional interests in viatical settlements. With the court’s approval, the parties stipulated that the injunction would be stayed with respect to transactions then in process, and that LPI would not seek any broader stay pending our resolution of this matter.
Finally, in March 1996 the district court granted an Emergency Motion for Supplemental Provisional Relief that the SEC filed in reaction to an affidavit in which Pardo asserted that LPI had complied with the court’s prior rulings and advised the court that LPI planned to resume the sale of viatical settlements. LPI interpreted a statement in the court’s opinion of January 1996, to the effect that “pre-purchase activities cannot alone” subject LPI to the Securities Acts, to mean that by discontinuing its performance of post-purchase services, the company could resume its sales without violating the injunction. The district court, however, concluded that LPI’s “technical changes have done little to alter the substance of the services provided to investors,” and preliminarily enjoined LPI from selling fractional interests in viatical settlements “by any ... means whatsoever,” pending this court’s decision on appeal.
At the same time that it was issuing these three preliminary injunctions against LPI, the district court acknowledged that the company provides “valuable funds [to] AIDS patients in their final illness” and that after “an [539]*539apparently exhaustive two-year investigation” the SEC could produce no evidence or even allegations “that any investor, terminally ill patient, or insurance company has been defrauded, misled, or is in any way dissatisfied with an LPI viatical settlement.” The Commission, however, points out that the securities laws, and in particular the disclosure requirements of the 1933 and 1934 Acts, are intended to prevent abuses before they arise. Still, that neither policyholders nor investors have complained of any abuse may help to explain why the viatical settlements industry is not more regulated. A number of states have enacted laws protecting the insureds but, according to the SEC, no state has undertaken specifically to protect investors in viatical settlements. (In all states investors are still protected by the common law of fraud, of course.)
Although some promoters of viatical settlements do register them as securities under the federal securities laws, LPI observes that registration means higher costs for investors and correspondingly lower prices for terminally ill policyholders, and objects that any significant administrative delay — even if the Commission were, for example, to permit the offeror to use one master registration and to make only a supplemental filing pertaining to each policy in which it proposes to sell fractional interests — might be fatal in this time-sensitive context. The Commission concedes that some policy-by-policy disclosure of risk factors would be required but ventures that the burden would not be prohibitive. The Commission also notes that some firms have sought and obtained an exemption from the federal securities laws for their viatical contracts; presumably a firm might also buy insurance policies for its own account or act as an agent, matching a single investor with a terminally ill insured, without running afoul of the securities laws.
That is not how LPI does business, however. LPI sells fractional interests in insurance policies to retail investors, who may pay as little as $650 and buy as little as 3% of the benefits of a policy. In order to reach its customers, LPI uses some 500 commissioned “licensees,” mostly independent financial planners. For its efforts, LPI’s net compensation is roughly 10% of the purchase price after payment of referral and other fees. Pardo claims that LPI is by far the largest of about 60 firms serving the rapidly growing market for viatical settlements; in 1994 the company accounted for more than half of the industry’s estimated annual revenues of $300 million. The company is 95% beneficially owned by Pardo through a trust, and 5% owned by Dr. Jack Kelly, who performs medical evaluations of policyholders on LPI’s behalf.
LPI was also the first company to develop a plan by which an investor could participate in a viatical settlement through an Individual Retirement Account. In order to circumvent the Internal Revenue Code prohibition upon IRAs investing in life insurance contracts, LPI structures the purchase through a separate trust established for that purpose. The IRA lends money to the trust, for which it receives a non-recourse note; the trust then uses the loan proceeds to purchase an interest in a life insurance policy, the death benefits of which collateralize the note. When the insured dies and the benefits are paid, the proceeds go to pay off the note held by the IRA.
Both LPI’s program for individual investors and its IRA program have gone through three iterations during the course of this litigation. In each, LPI performed or performs a number of pre-purchase functions: Specifically, even before assembling the investors, LPI evaluates the insured’s medical condition, reviews his insurance policy, negotiates the purchase price, and prepares the legal documents. The difference among the three versions is that LPI performs ever fewer (and ultimately no) post-purchase functions.
In Version I, the program that was the subject of the district court’s August 1995 order, LPI or Pardo could appear, and continue to appear after the investors had purchased their interests, in an insurance company’s records as the owner of a policy; LPI insists, however, that this practice was adopted not because LPI had any continuing-entrepreneurial role to play but only at the urging of the insurance companies for their administrative convenience; the investor was [540]*540at all times the legal owner. Also, once an investor acquired an interest in a policy he could avail himself of LPI’s on-going administrative services, which included monitoring the insured’s health, assuring that the policy did not lapse, converting a group policy into an individual policy where required, and arranging for resale of the investor’s interest when so requested and feasible.
Sterling Trust Company, an independent escrow agent acting for LPI, actually performed most of these post-purchase administrative functions. When the purchase closed, Sterling collected its own fee and that of LPI, escrowed funds for expected premium payments, and delivered the balance to the seller. Thereafter Sterling held the policy, held and disbursed all funds, ensured that all paperwork was in order, and filed the death claim. If an investor designated Sterling as the beneficiary, then Sterling also collected and distributed the death benefits. LPI had no continuing economic interest in the transaction after receipt of its fee upon the sale to the investor.
Between the district court’s August 1995 and January 1996 orders, LPI implemented revised procedures in an unsuccessful effort to meet the objections raised by the SEC and upheld by the court. In this Version II, neither LPI nor Pardo appeared as the owner of record of the insurance policy; instead, the investors were at all times the owners of record and thus had a direct contractual relationship with the insurance company. Indeed, Sterling agreed to report to the SEC any attempt by LPI to exercise ownership rights over any policies. Second, LPI affirmed that both the purchase money and the benefit payments would flow through Sterling and not through LPI. Third, LPI disclosed to prospective investors that Pardo is a 95% beneficial owner of LPI and that he had previously been involved in (unrelated) disputes with three federal regulatory agencies (the SEC, the Resolution Trust Corporation, and the Federal Deposit Insurance Corporation). Fourth, investors were informed that they were not obligated to use Sterling’s post-purchase services, which were being offered to them as a convenience to take or to leave. In fact, LPI furnished investors with all of the information needed to handle post-purchase activities themselves. The district court determined, however, in its order of January 1996 that these revised procedures still did not comply with the securities laws.
Finally, in yet a further attempt to allay the concerns of the SEC and of the district court, LPI in February 1996 unveiled Version III. Pardo would resign as president of LPI in favor of Mike Posey, the former president of Sterling. More important, LPI declared that it would no longer provide any post-purchase services to purchasers either directly or indirectly (i.e., through an agent such as Sterling). All such services would become the sole responsibility of the investor; Sterling would still be available to provide services as the agent of the investor if the investor elected to contract with Sterling for that purpose. The district court rejected this proposal in its March 1996 order.
II. Analysis
We take up first LPI’s opening argument that viatical settlements are insurance contracts and therefore entitled to an exemption from the 1933 Act. Finding that argument wanting, we proceed to consider whether the fractional interests promoted by LPI are “securities” within the meaning of that Act using the three-part test prescribed in SEC v. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946), in which each investor acquired an individual parcel of citrus fruit acreage together with a portion of the profits arising from the promoter’s management of the citrus grove, id. at 295-96, 66 S.Ct. at 1101-02. The Supreme Court held in Howey that an investment contract is a security if the investors (1) expect profits from (2) a common enterprise that (3) depends upon the efforts of others. Id. at 298-99, 66 S.Ct. at 1102-03. Because LPI’s contracts fail the third element of this test, we hold that they are not securities. Finally, we go on to address LPI’s program for the sale of viatical settlements to IRAs; the issue there is whether the notes used to facilitate such purchases are themselves securities even though the underlying viatical settlements are not. We conclude that because the notes [541]*541do not change the economic substance of the transaction they are not securities.
These are all questions of law and we review them all de novo. See Delaware and Hudson Ry. Co. v. United Transp. Union, 450 F.2d 603, 620 (D.C.Cir.1971) (“Insofar as the action of the trial judge on a request for preliminary injunction rests on a premise as to the pertinent rule of law, that premise is reviewable fully and de novo”). Let us begin.
A Exemption of Viatical Settlements as Insurance Contracts
If viatical settlements are insurance contracts, then they are altogether exempt from coverage under the federal securities laws. See Securities Act of 1933, 15 U.S.C. § 77c(a)(8) (“insurance ... policy ... issued by a corporation subject to the supervision of the insurance [authority] of any State” exempt from coverage). In favor of that exemption, LPI argues first that a viatical settlement redistributes risk in the same manner as does an insurance contract. The purchaser incurs a risk that the insured will live longer than anticipated, thus diminishing the present value of the death benefit; the insured is relieved of some of the financial implications of that risk ie.g., the need for funds to cover extended medical care) by taking a reduced but immediate payment. Second, invoking the McCarran-Ferguson Act, 15 U.S.C. § 1012(b), which provides that no federal law may “impair or supersede any law enacted by any State for the purpose of regulating the business of insurance,” LPI maintains that its activities of selling and' advertising death benefits are part of the “business of insurance,” see SEC v. National Secs., Inc., 393 U.S. 453, 460, 89 S.Ct. 564, 568-69, 21 L.Ed.2d 668 (1969) (statute governing sale and advertising of policies regulates “business of insurance”), and further refers us to the district court’s finding that a number of states expressly regulate viatical settlements “in the insurance sections of the state codes.”
We are advised by LPI that nine states now regulate viatical settlements and that others are considering the Model Viatical Settlements Act drafted by the National Association of Insurance Commissioners. The SEC observes, however, that these regulations protect sellers (insureds), not buyers (investors). LPI rejoins that the dearth of regulations to protect buyers indicates only that the states believe that such regulation is unnecessary. Indeed, the McCarran-Ferguson Act exemption from the federal securities laws is triggered not only when a state prohibits but also when it permits an insurance activity. See American Mut. Rein. Co. v. Calvert Fire Ins. Co., 52 Ill.App.3d 922, 9 Ill.Dec. 670, 675, 367 N.E.2d 104, 109 (1977).
We agree with LPI insofar as it implies that the important question is not whether the states regulate viatical settlements. The scope for federal regulation of viatical settlements does not turn upon whether the states regulate them; federal regulation is foreclosed or not depending upon whether viatical settlements are insurance contracts within the exemption that the Congress of 1933 expressly provided for such instruments, or the marketing of fractional interests is part of the business of insurance within the meaning of the McCarran-Ferguson Act. Accordingly, we focus upon that question.
The district court concluded that LPI “does not issue insurance policies or underwrite risk or undertake the normal activities of an insurance company.” The SEC adds that LPI does not engage in the quintessential insurance function of risk-pooling, ie., transforming what is a highly uncertain outcome for the individual insured into a highly predictable outcome by insuring a large number of persons. That an insurance policy underlies the viatical settlement is, the Commission says, irrelevant; any substantial asset1 might have served just as well. Moreover, the Commission states that “the business of insurance” referred to in the McCarran-Ferguson Act encompasses the relationship between an insurance company and an insured; the relationship that the SEC wants to regulate is that between a promoter and its investors, and regulation of that relationship “is not insurance regulation, but securities regulation.” See National Secs., 393 U.S. at 460, 89 S.Ct. at 569.
The SEC’s argument on this score is much more persuasive than LPI’s. The seller of a [542]*542viatical settlement is not foregoing current consumption in order to protect against future risk, as does the buyer of an insurance policy. Quite the contrary: he is giving up the protection of a policy already in effect, in favor of current consumption. Nor is there any evidence that the typical investor who buys an LPI viatical contract pools the financial risk that the seller will live longer than expected. To do so, the investor would have to acquire enough contracts to reduce the actuarial risk associated with the life span of each individual seller. The record gives no indication, however, that LPI’s investors systematically engage in the risk-pooling that is the essential characteristic of insurance. Moreover, there is no reason to expect that state insurance commissioners would regard even the pooling of viatical contracts as a form of insurance. To the extent that regulation of insurance companies is prompted by concern over their ability to pay benefits when due, that concern is simply not applicable to investors in a viatical settlement because the insured receives payment from the investors at the outset; thereafter the investor has no further liability to the insured.
To be sure, the investor’s pre-payment of the death benefit diminishes the insured’s risk that he will become insolvent before he dies; but as the SEC suggests, that initial risk of insolvency could have been reduced by the insured’s liquidation of any asset that he owned. For example, the buyer could just as effectively have purchased the seller’s home subject to his reservation of a life estate in the property, or the buyer might have factored the seller’s accounts receivable — which, like death benefits, will be paid at an uncertain future date and bear some risk of default. These arrangements — and numerous others — entail roughly the same investment risk-sharing features as the acquisition of a fractional interest in death benefits, but they do not involve an insurance contract. That the underlying asset in this case happens to be an insurance contract is, as the SEC maintains, simply irrelevant.
In short, a viatical settlement is not an insurance policy, and the business of selling fractional interests in insurance policies is no part of “the business of insurance.” LPI’s offering does not, therefore, qualify for the insurance exemption from the federal securities laws, and is not shielded from federal regulation by the McCarran-Ferguson Act.
B. The Three-Part Test ofHowey
We turn next to the question whether the LPI contracts are properly characterized as securities within the terms of the 1933 Act. That determination is controlled by the Supreme Court’s decision in Howey which, as stated above, holds that an investment contract is a security subject to the Act if investors purchase with (1) an expectation of profits arising from (2) a common enterprise that (3) depends upon the efforts of others. 328 U.S. at 298-99, 66 S.Ct. at 1102-03. To the extent practical we examine each component of the test separately.
1. Expectation of Profits
The SEC argues that the profits test requires only that “the investor could lose his investment, or that the value of his return could fluctuate,” quoting Guidry v. Bank of LaPlace, 954 F.2d 278, 284 (5th Cir.1992), and that, although the death benefit that an investor gets from a viatical settlement is in a fixed dollar amount, the profitability of the investment can vary because of the uncertain interval of time between the date of investment and the date of the insured’s death. The insured’s life span affects profitability in two ways: First, the annualized rate of return depends upon the length of the investment. Second, unless there has been a waiver of premiums pursuant to the terms of the insurance policy, the amount of the investor’s outlay for premiums depends upon the insured’s life span.
Arguing against the profits test as set forth in Guidry — which, by the way, is unclear about whether possible loss and fluctuating return are sufficient or merely necessary conditions — LPI maintains that under United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 852, 95 S.Ct. 2051, 2060, 44 L.Ed.2d 621 (1975), profits must be derived from “either capital appreciation resulting from the development of the initial investment ... or a participation in earnings resulting from the use of the investors’ [543]*543funds,” neither of which obtains with respect to viatical contracts. At oral argument the SEC asserted that even under this formulation viatical settlements satisfy the profits test of Howey because they appreciate in value — presumably because the insured’s death draws nearer with the passage of time, thus increasing the present value of the death benefit. The Commission’s reading of Forman, however, starkly omits the requirement that the capital appreciation result “from the development of the initial investment.” Id. The increased value of a viatical contract requires no “development” at all; it depends entirely upon the inexorable passage of time and the inevitable death of the insured.
On the other hand, the definition in For-man was apparently intended only to summarize the cases that had by then come before the Court — -not, as LPI implies, to preempt future development upon the basis of further experience. In full context, this is what the Court said:
By profits, the Court has meant either capital appreciation resulting from the development of the initial investment, as in [SEC v. C.M. Joiner Leasing Corp., 320 U.S. 344, 349, 64 S.Ct. 120, 122, 88 L.Ed. 88 (1943) ] (sale of oil leases conditioned on promoters’ agreement to drill exploratory well), or a participation in earnings resulting from the use of investors’ funds, as in Tcherepnin v. Knight, [389 U.S. 332, 339, 88 S.Ct. 548, 554-55, 19 L.Ed.2d 564 (1967) ] (dividends on the investment based on savings and loan association’s profits). In such cases the investor is “attracted solely by the prospects of a return” on his investment. Howey, supra, [328 U.S.] at 300 [66 S.Ct. at 1103-04]. By contrast, when a purchaser is motivated by a desire to use or consume the item purchased — “to occupy the land or to develop it themselves,” as the Howey Court put it, ibid. — the securities laws do not apply.
421 U.S. at 852-53, 95 S.Ct. at 2060-61. If the examples of Joiner and Tcherepnin were exhaustive, then the concept of profits would exclude, for example, the return on an investment in a residential mortgage or in any form of consumer loan — neither of which ordinarily involves capital appreciation or earnings resulting from the use of the investors’ funds. Both activities are undertaken in the expectation of profits, however, at least as that term is commonly understood.
The Court’s general principle we think, is only that the expected profits must, in conformity with ordinary usage, be in the form of a financial return on the investment, not in the form of consumption. This principle distinguishes between buying a note secured by a car and buying the car itself.
The asset acquired by an LPI investor is a claim on future death benefits. The buyer is obviously purchasing not for consumption— unmatured claims cannot be currently consumed — but rather for the prospect of a return on his investment. As we read the Forman gloss on Howey, that is enough to satisfy the requirement that the investment be made in the expectation of profits.
2. Common Enterprise
The second element of the Howey test for a security is that there be a “common enterprise.” So-called horizontal commonality— defined by the pooling of investment funds, shared profits, and shared losses — is ordinarily sufficient to satisfy the common enterprise requirement. See, e.g., Revak v. SEC Realty Corp., 18 F.3d 81, 87 (2d Cir.1994). Here, LPI brings together multiple investors and aggregates their funds to purchase the death benefits of an insurance policy. If the insured dies in a relatively short time, then the investors realize profits; if the insured lives a relatively long time, then the investors may lose money or at best fail to realize the return they had envisioned; ie., they experience a loss of the return they could otherwise have realized in some alternative investment of equivalent risk. Any profits or losses from an LPI contract accrue to all of the investors in that contract; i. e., it is not possible for one investor to realize a gain or loss without each other investor gaining or losing proportionately, based upon the amount that he invested. In that sense, the outcomes are shared among the investors; the sum that each receives is a predetermined portion of the aggregate death benefit.
[544]*544LPI claims, however, that there is no pooling and therefore no shared profits or losses because each investor acquires his own interest in the policy. Moreover, there is no requirement that the entire policy be purchased. It seems to us that the pooling issue reduces to the question whether there is a threshold percentage of a policy that must be sold before an investor can be assured that his purchase of a smaller percentage interest will be consummated. If not, then each investor’s acquisition is independent of all the other investors’ acquisitions and LPI is correct in asserting that there is no pooling. On the other hand, if LPI must have investors ready to buy some minimum percentage of the policy before the transaction will occur, then the investment is contingent upon a pooling of capital.
When we raised this point at oral argument, the SEC contended that inter-dependency among investors was not necessary to a determination that their funds are pooled; the test, according to the Commission, is whether the funds are “commingled.” In this context, however, commingling in itself is but an administrative detail; it is the interdependency of the investors that transforms the transaction substantively into a pooled investment. (Indeed, if the investments are inter-dependent, it would not matter if LPI scrupulously avoided commingling the investors’ funds — for example, by passing their checks directly to the seller at the closing.) Meanwhile, counsel for LPI volunteered that the issue of selling some minimum acceptable percentage of a policy has never arisen because LPI has always attracted purchasers for the full interest being offered. He went on to acknowledge, however, that if the situation were to arise, LPI would allow the insured the option of withdrawing from the transaction. Such a practice would of course serve LPI’s interest as well as that of the policyholder. Many of the post-purchase administrative functions {e.g., monitoring the insured’s health, collecting the death benefit) involve costs that are seemingly invariant to the number of investors or the percentage of a policy that has been sold. Neither LPI nor the investors would be anxious to spread these costs over contracts representing much less than the full value of a policy.
Therefore, we think that pooling is in practice an essential ingredient of the LPI program; that is, any individual investor would find that the profitability if not the completion of his or her purchase depends upon the completion of the larger deal. Because LPI’s viatical settlements entail this implicit form of pooling, and because any profits or losses accrue to all investors (in proportion to the amount invested), we conclude that all three elements of horizontal commonality— pooling, profit sharing, and loss sharing— attend the purchase of a fractional interest through LPI. (We need not reach, therefore, the SEC’s alternate contention that the LPI program entails “strict vertical commonality” — another formulation of the common enterprise test recognized in some circuits. See, e.g., Brodt v. Bache & Co., Inc., 595 F.2d 459, 461 (9th Cir.1978).)
Although horizontal commonality is ordinarily enough to make out the common enterprise required under the Howey test, in this instance LPI argues that commonality is not a sufficient condition because it is not obvious that there is an “enterprise” in the picture. For this LPI relies heavily upon Rodriguez v. Banco Central Corp., 990 F.2d 7, 10 (1993), in which the First Circuit held that “[e]ven if bought for investment, the land itself does not constitute a business enterprise.” In that case the investors purchased lots in Florida; the land had value in itself, and the seller had created no “enterprise” that would have an effect upon that value. LPI suggests that the investors in a viatical settlement likewise are buying only their fractional interest in the death benefit, not a share in a common business enterprise.
The SEC, for its part, would have us distinguish Rodriguez from the present ease on the ground that here the promoter makes specific commitments effective after the investors purchase their interests. Indeed, the First Circuit did remark that “commitments and promises incident to a land transfer ... can cross over the line and make the interest acquired one in an ongoing business enterprise.” Id. at 11. As the SEC’s response implies, however, LPI’s argument that there is no enterprise in the picture is more prop[545]*545erly addressed to the third part of the Howey test — whether profits are expected to arise from the efforts of others. We consider that question in the next section, where we take up the importance of the promoter’s post-purchase commitments.
3. Profits Derived Predominantly from the Efforts of Others
The final requirement of the Howey test for an investment to be deemed a security is that the profits expected by the investor be derived from the efforts of others. In this connection, the SEC suggests that investors in LPI’s viatical settlements are essentially passive; their profits, the Commission argues, depend predominantly upon the efforts of LPI, which provides pre-purchase expertise in identifying existing policyholders and, together with Sterling, provides post-purchase management of the investment. Meanwhile, LPI argues that its pre-purchase functions are wholly irrelevant and that the post-purchase functions, by whomever performed, should not count because they are only ministerial. On this view, once the transaction closes, the investors do not look to the efforts of others for their profits because the only variable affecting profits is the timing of the insured’s death, which is outside of LPI’s and Sterling’s control.
By its terms Howey requires that profits be generated “solely” from the efforts of others. 328 U.S. at 298, 66 S.Ct. at 1102-03. Although the lower courts have given the Supreme Court’s definition of a security broader sweep by requiring that profits be generated only “predominantly” from the efforts of others, see, e.g., SEC v. International Loan Network, Inc., 968 F.2d 1304, 1308 (D.C.Cir.1992); Goodman v. Epstein, 582 F.2d 388, 408 n. 59 (7th Cir.1978), they have never suggested that purely ministerial or clerical functions are by themselves sufficient; indeed, quite the opposite is 'rue. See, e.g., SEC v. Koscot Interplanetary, Inc., 497 F.2d 473, 483 (5th Cir.1974); SEC v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, 482 (9th Cir.1973) (efforts of others must be “undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise”). Because post-purchase entrepreneurial activities are the “efforts of others” most obviously relevant to the question whether a promoter is selling a “security,” we turn first to the distinction between those post-purchase functions that are entrepreneurial and those that are ministerial; thereafter, we consider the relevance of pre-purchase entrepreneurial services.
Ministerial versus entrepreneurial functions, post-purchase. In Version I of its program, LPI and not the investor could appear as the owner of record of the insurance policy. LPI’s ownership gave it the ability, post-purchase, to change the party designated as the beneficiary of the policy, indeed to substitute itself as beneficiary. That ability tied the fortunes of the investors more closely to those of LPI in the sense that it made the investors dependent upon LPI’s continuing to deal honestly with them, at least to the extent of not wrongfully dropping them as beneficiaries.
This does not, however, establish an association between the profits of the investors and the “efforts” of LPI. Nothing that LPI could do by virtue of its record ownership had any effect whatsoever upon the near-exclusive determinant of the investors’ rate of return, namely how long the insured survives. Only if LPI misappropriated the investors’ funds, or failed to perform its post-purchase ministerial functions, would it affect the investors’ profits. Such a possibility provides no basis upon which to distinguish securities from non-securities. The promoter’s “efforts” not to engage in criminal or tortious behavior, or not to breach its contract are not the sort of entrepreneurial exertions that the Howey Court had in mind when it referred to profits arising from “the efforts of others.”
In Version II LPI no longer appeared as the record owner of a policy, but LPI and Sterling continued to offer the following post-purchase services: holding the policy, monitoring the insured’s health, paying premiums, converting a group policy into an individual policy where required, filing the death claim, collecting and distributing the death benefit (if requested), and assisting an investor who might wish to resell his interest. LPI characterizes these functions as clerical and rou[546]*546tine in nature, not managerial or entrepreneurial, and therefore unimportant to the source of investor expectations; in sum, anyone including the investor himself could supply these services. The district court seemed to agree with LPI about the character if not the significance of most post-purchase services, for it described them as “often ministerial in nature.”
The Commission disputes the district court’s characterization of post-purchase services as ministerial, but attempts to portray only one service in particular as entrepreneurial: we refer to the secondary market that LPI purportedly makes. By establishing a resale market, according to the SEC, LPI links the profitability of the investments it sells to the success of its own efforts. We find this argument unconvincing for several reasons. First, there is no evidence in the record before us that investors actually seek to liquidate their investments prior to the receipt of death benefits. Second, there is no evidence that LPI’s potential assistance adds value to the investment contract; an investor could, for all that appears, get the same help with resale (if any is needed) through any one of the many firms that sell viatical settlements. Third, LPI is quite specific in warning its clients that
viatical transactions are not liquid assets. There is no established market for the resale of such policies. They should be purchased only by persons who are willing and able to hold the policy until it matures____ Life Partners’ present practice is to assist in the resale of policies purchased by its clients [but] ... [t]here is no guarantee that any policy can be resold, or that resale, if it occurs, will be at any given price.
LPI’s promise of help in arranging for the resale of a policy is not an adequate basis upon which to conclude that the fortunes of the investors are tied to the efforts of the company, much less that them profits derive “predominantly” from those efforts.
In Version III LPI provides no post-purchase services. All such services are the sole responsibility of the investors, who may purchase them from Sterling or not, as they choose. The district court minimized the significance of this choice, stating that “it is neither realistic nor feasible for multiple investors, who are strangers to each other, to perform post-purchase tasks without relying on the knowledge and expertise of a third party [and] the third party in this case will almost certainly be Sterling.” Even if we accept this assessment, it does not alter our analysis. As we have seen, none of Sterling’s post-purchase services can meaningfully affect the profitability of the investment. It is therefore of no moment whether Sterling performs those services usually or always, or whether it does so as the agent of LPI or as the agent of the investor.
In sum, the SEC has not identified any significant non-ministerial service that LPI or Sterling performs for investors once they have purchased their fractional interests in a viatical settlement. Nor do we find that any of the ministerial functions have a material impact upon the profits of the investors. Therefore, we turn to the question whether LPI’s pre-purchase services count as “the efforts of others” under the Howey test.
Entrepreneurial Junctions, pre-purchase. LPI’s assertion that its pre-purchase efforts are irrelevant receives strong, albeit implicit, support from the Ninth Circuit decision in Noa v. Key Futures, Inc., 638 F.2d 77 (1980) {per curiam). In that case, which involved investments in silver bars, the court observed that the promoter made pre-purchase efforts to identify the investment and to locate prospective investors; offered to store the silver bars at no charge for a year after purchase and to repurchase them at the published spot price at any time without charging a brokerage fee. The court concluded, however, that these services were only minimally related to the profitability of the investment: “Once the purchase ... was made, the profits to the investor depended upon the fluctuations of the silver market, not the managerial efforts of [the promoter].” Id. at 79-80.
The Tenth Circuit applied the same principle (to reach a different result) with respect to an investment in undeveloped land. McCown v. Heidler, 527 F.2d 204 (1975). In that case, the plaintiffs claimed that the parcels they had purchased were securities. In marketing the parcels to potential investors [547]*547the promoters had promised to make future improvements to the lots. “[Without the substantial improvements pledged by [the promoters] the lots would not have a value consistent with the price which purchasers paid____ The utilization of purchase money accumulated from lot sales to build the promised improvements” could bring the scheme within the purview of the securities laws. Id. at 211.
In both Noa and McCown, the courts of appeals regarded the promoter’s pre-purchase efforts as insignificant to the question whether the investments — in silver bars and parcels of land, respectively — were securities. The different outcomes trace wholly to the promoters’ commitment to perform meaningful post-purchase functions in McCown but not in Noa.
In the present case, the district court distinguished Noa on the ground that, because silver is a fungible commodity, the i rnioter’s pre-purchase efforts were inconsequential; LPI, in contrast, performed highly specialized functions in identifying and evaluating individual policies suitable for purchase by investors. Still, the district court declared (in its January 1996 opinion) that “pre-purchase activities cannot alone support a finding that investors’ profits derive from the activities of LPI.” Instead, the court relied upon the “pre-closing activities in addition to the post-closing activities that LPI continues to perform.”
The Commission at oral argument tried to distance itself from Noa on roughly the same ground, arguing that an investor could, without great effort, independently evaluate the silver bars in that case, whereas an LPI investor would have considerably greater difficulty, especially in those instances where the terminally ill insured insists upon anonymity until the closing of the sale. LPI counters that its investors also play an active pre-purchase role in setting their own purchase criteria (such as the insured’s life expectancy and the minimum acceptable risk rating of the insurer) and reviewing the insured’s health profile and his insurance policy. Even if true, the district court appropriately characterized LPI’s pre-purchase efforts as “undeniably essential to the overall success of the investment.” The investors rely heavily, if not exclusively, upon LPI to locate insureds and to evaluate them and their policies, as well as to negotiate an attractive purchase price.
The SEC urges us to go even further than did the district court, however, in appraising the significance of LPI’s pre-purchase activities insofar as they count toward “the efforts of others.” The Commission reminds us that the Supreme Court did not draw a bright line distinction in Howey between pre- and post-purchase efforts, and notes that LPI may continue to perform some functions, such as preparing the preliminary agreement and evaluating the insured’s policy and medical file, right up to the closing of the transaction. Therefore it would be hypertechnical, according to the Commission, to discount the importance of LPI’s pre-purchase entrepreneurial functions simply because they occur before the moment of closing.
Absent compelling legal support for the Commission’s theory — and the Commission actually furnishes no support at all — we cannot agree that the time of sale is an artificial dividing line. It is a legal construct but a significant one. If the investor’s profits depend thereafter predominantly upon the promoter’s efforts, then the investor may benefit from the disclosure and other requirements of the federal securities laws. But if the value of the promoter’s efforts has already been impounded into the promoter’s fees or into the purchase price of the investment, and if neither the promoter nor anyone else is expected to make further efforts that will affect the outcome of the investment, then the need for federal securities regulation is greatly diminished. While, to be sure, coverage under the 1933 Act might increase the quantity (and perhaps the quality) of information available to the investor prior to the closing, “the securities laws [are not] a broad federal remedy for all fraud.” Marine Bank v. Weaver, 455 U.S. 551, 556, 102 S.Ct. 1220, 1223, 71 L.Ed.2d 409 (1982). They are concerned only with securities fraud, and .the question before us is the threshold question whether a fractional interest in a viatical settlement is a security. To answer that question we look for “an investment in a [548]*548common venture” with profits “derived from the entrepreneurial or managerial efforts of others.” Forman, 421 U.S. at 852, 95 S.Ct. at 2060.
We see here no “venture” associated with the ownership of an insurance contract from which one’s profit depends entirely upon the mortality of the insured — -just as the First Circuit saw no “enterprise” associated with holding land for investment in Rodriguez, 990 F.2d at 10. Nor is the combination of LPI’s pre-purchase services as a finder-promoter and its largely ministerial post-purchase services enough to establish that the investors’ profits flow predominantly from the efforts of others.
While we doubt that pre-purchase services should ever count for much, for present purposes we need only agree with the district court that pre-purchase services cannot by themselves suffice to make the profits of an investment arise predominantly from the efforts of others, and that ministerial functions should receive a good deal less weight than entrepreneurial activities. The SEC (like the district court) has identified no post-purchase service provided by LPI or Sterling that could fairly be characterized as entrepreneurial and combined with LPI’s pre-purchase services to affect the outcome of the Howey test. Nor has the Commission pointed to a single case in which an investment vehicle was deemed a security subject to the federal securities laws although the investor did not look to the promoter (or another party) to provide significant post-purchase efforts.
In this case it is the length of the insured’s life that is of overwhelming importance to the value of the viatical settlements marketed by LPI. As a result, the SEC is unable to show that the promoter’s efforts have a predominant influence upon investors’ profits; and because all three elements of the Howey test must be satisfied before an investment is characterized as a security, Revak, 18 F.3d at 87, we must conclude that the viatical settlements marketed by LPI are not securities.
C. The LPI Program for IRA Investments in Viatical Settlements
Finally, we must resolve the question, which the district court did not reach, whether the notes issued under the company’s IRA program might be securities even though the underlying fractional interests in viatical settlements are not. In brief, the program is structured as follows: LPI establishes a separate trust for each investor’s IRA; the trust borrows money from the IRA and issues a non-recourse note in exchange. The trust uses the loan proceeds to invest in a viatical contract, the death benefits of which collateralize the note. When the death benefits are ultimately paid, the trust distributes them to the IRA in satisfaction of the note.
The SEC urges that we decide whether the notes are securities by application of the “family resemblance test” of Reves v. Ernst & Young, 494 U.S. 56, 65, 110 S.Ct. 945, 951, 108 L.Ed.2d 47 (1990), pursuant to which a note is deemed to be a security unless it resembles one of a list of instruments that are not securities. Because we have already determined, however, that the underlying viatical contracts are not securities, and because the essential characteristics of the investment are no different whether the purchaser is an IRA or an individual investor, the status of the notes under the 1933 Act does not require extended analysis.
The note is used in these transactions, as the SEC itself affirms in its brief, merely in order to navigate around certain restrictions [549]*549in the tax code that preclude IRAs from investing in life insurance contracts. If the individual who owns the IRA wants to invest the IRA’s capital in a viatical settlement, then the note is nothing more than a device by which to make that investment in a form that complies with the tax code; use of the note does not alter the substance of the transaction in any manner that would suggest a role for the securities laws that is not otherwise indicated by law. In this we follow directly the teaching of the Supreme Court: “[I]n searching for the meaning and scope of the word ‘security’ in the Act, form should be disregarded for substance and the emphasis should be on economic reality.” Tcherepnin, 389 U.S. at 336, 88 S.Ct. at 553. Applying this precept, we hold that the notes — like the viatical contracts for which they stand — are not securities.
III. Summary and Conclusion
LPI advances two arguments in support of the proposition that its viatical settlements are not subject to the federal securities laws. First, the company contends that its contracts are exempt as insurance contracts under the Securities Act of 1933 and the McCarran-Ferguson Act. For the reasons set forth in Part II.A, however, we conclude that a viatical settlement is not an insurance policy, and that the business of selling fractional interests in insurance policies is not part of “the business of insurance.” We therefore reject LPI’s exemption argument.
Second, LPI maintains that the fractional interests which it sells to investors are not securities within the meaning of the 1933 Act, as controlled by the Supreme Court’s decision in Howey. In Parts II.B(l) and II.B(2), respectively, we conclude that LPI’s contracts meet two parts of the Howey test: investors purchase the contracts with an expectation of profits; and they pool their funds, then share any profits or losses that arise. In Part II.B(3), however, we hold that fractional interests in viatical settlements, in any of the three versions marketed or proposed by LPI, are not securities. The combination of LPI’s pre-purchase services as a finder-promoter and its largely ministerial post-purchase services is not enough to satisfy the third requirement in Howey: the investors’ profits do not flow predominantly from the efforts of others. Finally, we hold that the notes issued to IRAs by LPI-sponsored trusts are not securities either. Looking to the substance of such transactions, we see that the notes are used solely for tax purposes, not as a means of raising capital.
Accordingly, this case is remanded to the district court with instructions to vacate the three injunctions entered against LPI in August 1995, January 1996, and March 1996.
So ordered.
Our dissenting colleague suggests that pre-purchase managerial activities are alone sufficient if they are the predominant factor in determining whether profits are eventually realized. Dissent at 551. In support of this proposition she can find only a dictum in a district court case, SEC v. Brigadoon Scotch Distribs., Ltd., 388 F.Supp. 1288, 1293 (S.D.N.Y.1975), in which — as the dissent concedes — the promoter's managerial efforts continued post-purchase through its agreement to repurchase the coins it was selling. Indeed, the district court's holding was controlled by Glen-Arden Commodities, Inc. v. Costantino, 493 F.2d 1027 (1974), in which the Second Circuit had held that even though the "very investment to be made was in [Scotch whiskey] to be specifically selected" by the promoters, the promise by the promoters to “find buyers for the Scotch or buy it back themselves” was the primary reason for characterizing the investment as a security. Id. at 1035 (original emphasis).