Howey marketed the land through a resort hotel it owned in the area and promised significant profits in the sales pitch it provided to those who expressed interest in the groves.

Thus, the Court concluded that Congress had written the term into the statute in recognition of its previously adopted common law meaning.

Murphy then formulated one of the US Supreme Court's earliest tests to determine whether an instrument qualifies as an "investment contract" for the purposes of the Securities Act (which later came to be referred to as the Howey test): "In other words, an 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, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.

"[1] Murphy determined that the contracts in issue met all four prongs of this test and so W. J. Howey could be held liable for violating § 5 of the Securities Act of 1933.

Furthermore, Murphy held that the fact that some of the investors chose to use services other than those of Howey-in-the-Hills to tend to the groves was irrelevant because §5 forbids the offer of unregistered securities as well as the sale of them.