What is Howey Test?
Let's find out Howey Test meaning, definition in crypto, what is Howey Test, and all other detailed facts.
The Howey Test is a test created by the US Supreme Court to determine whether an asset is a security. If this is proven to be the case, the asset is then subject to specific regulations regarding its disclosure and registration, as all securities must be registered with the US regulatory agency Securities and Exchange Commission (SEC).
The SEC applies the Howey Test by determining whether a person investing their money in a common enterprise expects profits from the efforts of a third party. If so, the SEC deems the asset security.
The name derives from a 1946 Supreme Court case SEC v. W. J. Howey Co. A Florida-based citrus farm was selling investment contracts while failing to register them as securities with the SEC. According to the farm’s representatives, the contracts were not securities.
The case was won by the SEC. The Howey Test was then established as the standard to determine whether financial instruments act as investment contracts, therefore, whether they were securities.
The Howey Test can also be applicable in the crypto industry. All tokens that are deemed to be securities according to the Howey Test must be registered with the SEC.