Howey Test

Definition:

Test established by the U.S. Supreme Court in SEC v. W.J. Howey Co. and subsequent case law to determine whether a transaction qualifies as an ‘investment contract’ and as a result ‘security’ under U.S. securities laws. According to the Howey Test an investment contract exists when there is the investment of money, in a common enterprise, with a reasonable expectation of profits to be derived from the efforts of others. It applies to any contract, scheme, or transaction, regardless of whether it has any of the characteristics of typical securities.

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