The U.S. Supreme Court case known as the Howey Test is used to determine whether a transaction meets the criteria for the designation of an “investment contract”, making it subject to the disclosure and registration requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934. According to the Howey Test, if there is an “investment in a joint company with a reasonable expectation of gains to be gained from the labor of others”, an investment contract is present.
Any contract, scheme, or transaction must pass the test. For positioning blockchain and cryptocurrency initiatives with investors and project backers, the Howey Test is crucial. The test may reveal that some cryptocurrencies and initial coin offerings (ICOs) fit the criteria of an “investment contract”.