The courts apply the ________ test in determining whether an arrangement is an investment contract and therefore a security.

Question

Quizplus · Accepted Answer

The test used by the courts in determining whether an arrangement is an investment contract and therefore a security is called the Howey test. It was established by the Supreme Court in the case of SEC v. W.J. Howey Co. (1946). The test has four elements: (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits, (4) solely from the efforts of others. If all four elements are present, the arrangement is considered a security and falls under federal securities laws.

The Courts Apply the ________ Test in Determining Whether an Arrangement