Howey Test: values and security tokens
La Howey Test o Howey's Evidence, it is a method by which you can test whether a certain economic action is an investment contract or not. Its creation dates back to 1946, when the US Supreme Court handled a monumental case, known as SEC vs Howey, which would lay the foundation for the now infamous Howey test. In the case, it was to establish a test of whether a particular agreement involves an investment contract or not.
The test consisted of a series of parameters that would define whether a transaction will be called an investment contract. Those parameters are:
- It is an investment of money.
- The investment is in a joint venture.
- There is an expectation of profit from the work of the promoters or the third party.
The term "Common enterprise" it is open to interpretation, as many federal courts have redefined the concept. Even though the original Howey Tests used the term "money", subsequent cases expanded it. With which they included other types of investments and assets that were not money.
Also, there is one other important thing to consider when determining values. The benefits that come from the investment, are they under the investor's control or are they completely out of it? If it is not under the investor's control, then the asset is generally declared a guarantee.
Then, How is this relevant for ICO and tokens?. If the token meets the three criteria mentioned above, then it is considered as a security.
If you are thinking of creating a security token in Spain / Europe, you can contact us. In Bit2Me We have the technical resources, industry know-how and legal knowledge necessary to help you through all the different stages of the process.