Howey Test & Blockchain Law
Discover more from ASCL Blog
Howey Test & Blockchain Law
Is your crypto asset a security under the securities regulations? Ask your blockchain lawyer.
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.
It has three main components to decide if a financial transaction is subject to securities regulations:
An investment of money or something of value
Expectation of profits
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:
For compliance with the regulations to avoid any legal issues
On the appropriate structure for investments and business transactions to minimize exposure to securities regulation and liability
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.
To use this tool, join ASCL's