Defined Term
Howey Test
The US Supreme Court test (SEC v. W.J. Howey Co., 1946) for whether an arrangement is an investment contract and therefore a security. Applied to crypto tokens by the SEC since the 2017 DAO Report.
The Howey test is the US Supreme Court's test for whether a transaction is an "investment contract" and therefore a security under the US Securities Act of 1933. An arrangement is a security if it involves: (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profit, (4) derived from the efforts of others.
The SEC has applied the Howey test to digital assets since the 2017 DAO Report. Failing the test (i.e., the arrangement is a security) triggers US registration and exemption requirements.