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Howey Test & Blockchain Law

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Howey Test & Blockchain Law

Is your crypto asset a security under the securities regulations? Ask your blockchain lawyer.

Asian School of Cyber Laws
Jan 13
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Share this post

Howey Test & Blockchain Law

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Howey Test

The Howey Test is a legal test used to determine whether a financial transaction is considered an "investment contract" and is subject to securities regulations.

It was established in a 1946 US Supreme Court case called SEC v. Howey Co.

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It has three main components to decide if a financial transaction is subject to securities regulations:

  1. An investment of money or something of value

  2. Expectation of profits

  3. Profits to come from the efforts of othersIf a transaction meets all these criteria, it is subject to securities regulations.

This means that the company offering the investment must comply with certain rules and disclose certain information to potential investors.

This applies to any contract, scheme, or transaction, regardless of whether it has any of the characteristics of typical securities.

The test applies to the instrument itself as well as the manner in which it is offered, sold, or resold.

A blockchain lawyer must understand the Howey Test. It helps to advise clients:

  1. For compliance with the regulations to avoid any legal issues

  2. On the appropriate structure for investments and business transactions to minimize exposure to securities regulation and liability

  3. On the appropriate project structure to be adopted to take a crypto project ahead. This includes ICO, IDO, IEO, SAFT and DAICO.

Inspired by the Crypto Rating Council's Securities Law Framework, we’ve built a proprietary tool to help blockchain lawyers assess if a digital/crypto asset could be considered a security.

The lower the score, the less likely it is that a Crypto Asset would be considered a security.

Here’s a sneak peek into the Howey Test for Crypto Assets.

SNEAK PEEK INTO THE HOWEY TEST GENERATOR TOOL

To use this tool, join ASCL's

Executive Program in Blockchain Law

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