SEC v. W. J. Howey Co.
In SEC v. W. J. Howey Co., 328 U.S. 293 (1946), the U.S. Supreme Court established the test for the SEC to decide whether certain assets are securities.
| “ | The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others. If that test be satisfied, it is immaterial whether the enterprise is speculative or non-speculative or whether there is a sale of property with or without intrinsic value. | ” |
Id. at 301.
Despite that original limitation in the definition of securities to "profits to come solely from the efforts of others," courts subsequently removed that restriction and thereby broadened what would be regulated as securities. See SEC v. Merchant Capital, LLC, 483 F.3d 747 (11th Cir. 2007); Long v. Schultz Cattle Co., 881 F.2d 129 (5th Cir. 1989); Williamson v. Tucker, 645 F.2d 404 (5th Cir. 1981); SEC v. Glenn W. Turner Enter., Inc., 474 F.2d 476 (9th Cir. 1973); Continental Marketing Corp. v. SEC, 387 F.2d 466 (10th Cir. 1967).
The SEC regulates, as securities, digital assets when they satisfy the Howey test.
In early 2018, SEC Chairman Jay Clayton testified during a U.S. Senate hearing that “I believe every ICO [initial coin offering] I’ve seen is a security.”[1]
Previously, in 2017, Director of Corporation Finance Bill Hinman delivered a famous speech entitled “When Howey Met Gary (Plastics),” during which he declared that “calling the transaction an initial coin offering, or ‘ICO,’ or a sale of a ‘token,’ will not take it out of the purview of the U.S. securities laws.”[1]
