The Howey Test is the test by which the SEC determines whether or not any given transaction counts as an "investment contract" and is therefore subject to the Securities Act of 1933 and attendant regulations. The factors of the test are:
- An investment of money
- in a common enterprise
- and is led to expect profits
- solely from the efforts of the promoter or a third party.
The company issuing the tokens can be the "third party."
If someone is buying into your ICO with the expectation that you will use that money to grow the value of the token, or if the token represents partial ownership in the company issuing the coin, it will be subject to the Act. Virtually all ICOs will "pass" the Howey test and will therefore be subject to the Act.
Legal Briefs are short, plain interpretations of law. They are written by a licensed attorney. They are not intended as legal advice and do not form an attorney-client relationship with any person.