SEC Howey Test

The Howey Test is a legal standard used to determine if an investment is a security and thus subject to federal regulations. It asks whether an investment involves 1) money invested, 2) in a common enterprise, and 3) with the expectation of profits primarily from the efforts of others. If all three are true, the investment qualifies as a security. This helps regulators identify situations where investment transactions should be protected and governed by securities laws.