How get ICOs regulated and what is the Howey-test?
- We have heard a lot about SEC-regulation and possible security-laws violations in the past months. The SEC traditionally uses the so-called "Howey-test" to determine if an asset is considered a security or not.
But what exactly is a security?
A security is any investment product that can be exchanged for value, involves risk and is tradeable. It represents an ownership position, a creditor relationship or rights to ownership as represented in an option, for example stocks and bonds.In contrast to tangible assets that you own, for example a car or a house.
But what exactly is the Howey-test?
The name originates from a Supreme Court decision in 1946: SEC v W.J. Howey Co.
Howey Co was offering service contracts for producing, harvesting and marketing orange crops in Lake County, Florida. Most of these contracts were sold to tourists who stayed at a hotel that was owned by Howey Co, which sold land and land + service contracts to interessted visitors.
Then the Supreme Court stepped in and asked if the purchase + the service contract created an "investment contract"?
The Supreme Court said yes and so the so-called Howey-test was born which is used to determine whether things that don't look like securites can in fact be deemed securities:
These are the criteria:
- there is an investment of money
- with an expectation of profit
- this expectation of profits derives largely from the efforts of others