What is the Howey Test?
The Supreme Court created the “Howey Test” as a tool to determine whether transactions classify as investment contracts. If yes, then under the Securities Act of 1933 and the Securities Exchange Act of 1934 the transactions would be regarded as securities and thus subject to disclosure and registration requirements.
What is a security?
Under the Securities Act and Securities Exchange Act notes, stocks, bonds, and investment contracts fall under securities. Why does this matter, you may wonder? Whether an investment is considered a security or not has massive implications on the regulations it will be subject to. In a nutshell, if it is a security it is regulated by the SEC (Securities and Exchange Commission).
What are the four elements of the Howey Test?
A transaction qualifies as a security if it involves all four of the following elements:
1) An investment of money
2) In a common enterprise
3) A reasonable expectation of profit
4) Derived from the efforts of others
A transaction must meet ALL four prongs of the Howey Test to be treated as a security. The final aspect of the test relates to the way profits are controlled. If investors have little or no control over how the investments are managed, it is likely that the transaction is a security.
Howey Test and Timpi
The legal evaluation included rigorous analysis of Timpi and its activities and concluded that “since not all the elements of the Howey Test are met … the [Timpi] Token does not meet the legal definition of a security under the United States law.”
“We are proud to have gone through legal evaluation and have deemed not to be a security according to US Law. As we continue to be pioneers in Web3 technologies, Timpi will always look for ways in which we can reinforce our legitimacy in this fast-evolving market.”
– Gareth Evans, Timpi Founder & COO
Implications for Timpi
The implications of this conclusion are exciting and huge for Timpi. Effectively, if Timpi is not deemed a security, we do not have to register the project with the SEC. Nor does the SEC have the power to determine whether we can sell Timpi to citizens of the US. Not to mention the list of regulations that we don’t have to worry about as we grow.
We are delighted to be sharing this news with you!
If you would like to see the entire 96-page legal evaluation you can view it HERE.
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References:
https://www.findlaw.com/consumer/securities-law/what-is-the-howey-test.html https://www.embroker.com/blog/what-is-the-howey-test-does-crypto-pass/
