What Is the Howey Test?
The Howey Test is four criteria an asset must meet to qualify as an “investment contract.” If the asset is an “investment of money in a common enterprise, with a reasonable expectation of profits to be derived from the efforts of others” it is considered a security.
The opinion of the Supreme Court stated that “…an investment contract, for the purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third part…”3 This statement created the four criteria now used as the Howey Test:
- An investment of money
- In a common enterprise
- With the expectation of profit
- To be derived from the efforts of others
https://www.investopedia.com/terms/h/howey-test.asp
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