What is the Howey Test?
The Howey Test is like a financial detective! It's a legal framework used to figure out if an investment is actually a security. This is important because securities come with regulations to protect investors. The Howey Test asks four questions:
- Is there an investment of money?
- Is there an expectation of profits?
- Is it a common enterprise (meaning many people are involved)?
- Do the profits come from the efforts of others (not your own work)?
If the answer is yes to all four, then the investment is likely considered a security.