Securities Regulation

Howey Test

The Howey test determines whether or not something is an investment contract, a type of security. By extension, this often determines whether or not something is a security.

1. Invest Money
   • The motivation should be to invest money, not just exist as a requirement for something else.
2. Common Enterprise

   For an endeavor to be a common enterprise, there must be one of three types of commonality:

   • Horizontal Commonality

     Horizontal commonality exists when there is a pooling of investors' funds.

   • Strict Vertical Commonality

     Strict vertical commonality is present when the promoters and the investors actually share the risk of the investment.

   • Broad Vertical Commonality

     Broad vertical commonality is present when there is a connection between the efforts of the promoters and the collective successes and losses of the investors.

     This is probably not correct because it is basically the same thing as the "efforts of others" element of the Howey test.

   Different states accept different types of commonality.

3. Expectation of Profits
4. Efforts of Others